Suppose you deposit $10,000 today, with the expectation that it will grow for 10 years at 11%...

Question:

Suppose you deposit $10,000 today, with the expectation that it will grow for 10 years at 11% interest compounded monthly. You then plan to withdraw the funds quarterly over the next 4 years. You expect the annual interest rate over those 4 years to be 9%. Demonstrate that your total withdrawals, to the nearest dollar, will amount to $35,926.

Deposits vs Withdrawals:

Deposits increase the balance of an account, while withdrawals reduce that balance. In general, we can find the balance of an account either as the present value of withdrawals or as the future value of deposits.

Answer and Explanation: 1

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Let us assume,

  • r = interest rate on deposit = 11% / 12 = 0.91667% per month
  • n = number of months of interest accumulation = 10 * 12 =120 months
  • FV =...

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How to Find the Value of an Annuity

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Chapter 21 / Lesson 15
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An annuity is a type of savings account that pays back the investor in the future. Learn the formula used to calculate an annuity's value, and understand the importance of labeling specific numbers to calculate an output over time.


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