Question

In the previous question, suppose that you decided not to 30 quit your job and go back to school. Instead, you decide to put S65,000 (your tuition books and foregone wages) into the bank at the end of the first year and another $65,000 at the end of the second year at 7% interest. Right after making your second deposit, how much money would you have in the bank at the end of the second year? a. b. You want to take money out of the bank (the same amount each year) starting at the end of the third year and the fourth year and so on for 38 years. Assuming that the interest rate remains at 7%, approximately how many dollars could you take out of the bank at the end of each of the next 38 years such that there is no money left in the bank after your last withdrawal at the end of the 38h year? State your answer to the nearest S100..._ Which is the better investment, going to school for the MBA or putting your money into the bank at 7%? c.

Answer 1

30.

A.

Amount of money at the end of year 2 = 65000*(1+7%) + 65000

Amount of money at the end of year 2 = $134550

B.

Number of years of withdrawal = 38

R = 7%

Let, annual amount to be withdrawn = P

134550 = P*(1-1/(1+7%)^38)/.07

134550 = P*13.1935

P = 134550/13.1939

P = $10197.89 or $10200

So, the uniform annual withdrawal for 38 years will be $10197.89 or $10200.

C.

Compare this outcome with the outcomes of the previous question (that is not given in the given problem). the alternative giving higher value of annual withdrawal will be selected.