Homework Answers
Amount available at present = $360,000
Monthly interest rate = 0.666667% or 0.00666667
Here we use the present value of annuity formula and calculate the
annuity amount.
Present value of annuity = P * [ (1 - (1 + r)^-n) / r ]
Present value = $360,000
P = Monthly withdrawal
r = Monthly interest rate = 0.00666667
n = no. of withdrawals = 12 * 20 = 240
Present value of annuity = P * [ (1 - (1 + r)^-n) / r ]
$360,000 = P * [ (1 - (1 + 0.00666667)^-240) / 0.00666667 ]
$360,000 = P * 119.554256
P = $360,000 / 119.554256
P = $3,011.19
Hence the monthly withdrawal is $3,011.19
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