Question

Problem 7-17 You have an IRA worth $150,000 and want to start to make equal, annual withdrawals (i.e., distributions from the account) for 20 years. You anticipate earning 4 percent on the funds. (To facilitate the calculation, assume an ordinary annuity.) Use Appendix D to answer the questions. Round your answers to the nearest dollar.

How much can you withdraw each year? $ Since you are earning 4 percent on your investments, how much of the withdrawal consumes your investments?

$ How much will be in the account at the end of the first year?

$ How much do you earn on your investments in the account during the second year?

$ How much will be in the account at the end of the second year? $

Answer 1

Calculating Annual Withdrawal,

Using TVM Calculation,

PMT = [PV = 150,000, FV = 0, N = 20, I = 0.04]

PMT = $11,037.26

Value at the end of Year 1 = [PV = 150,000, PMT = -11,037.25, N = 1, I = 0.04]

Value at the end of Year 1 = $144,962.74

alue at the end of Year 2 = [PV = 150,000, PMT = -11,037.25, N = 2, I = 0.04]

Value at the end of Year 1 = $139,723.99