what is the amount of ten equal annual deposits that can provide five annual withdrawals where a first withdrawal of $2000 is made at the end of year 11 and subsequent withdrawals increase at the rate of 5% per year iver the previous year’s if the interest rate is 7% compounded annually?Use equation: A=P(P/A, i, n)

32 0

Get full Expert solution in seconds

$1.97 ONLY

EXPERT ANSWER

We will equate the present value of 5 withdrawals at year 10 with the future value of ten annual deposits at year 10.

Withdrawals are A11=$2000, A12 = $2000*(1.05), A13 = $2000*(1.05)^2, A14 = $2000*(1.05)^3, A15 = $2000 *(1.05)^4.

This is geometric series starting at $2000 and growing at a 5% rate. Use the geometric series factor to find the equivalent worth at year 10, using i=7% and g = 5%.

P = $2000(P/A, g, i, n) = $2000(P/A, 0.05, 0.07, 5)