Posted by Marzi on Tuesday, January 27, 2009 at 10:08pm.
I am having some trouble solving this problem, can you give some guidance as to the solution.
What is the amount of 10 equal annual deposits that can provide five annual withdrawals, when a first withdrawal of $1000 is made at the end of year 11, and subsequent withdrawals increase at the rate of 6% per year over the previous year's, if
(a)The interest rate is 8%, compounded annually?
(b)The interest rate is 6%, compounded annually?
- Engineering Economics - economyst, Wednesday, January 28, 2009 at 9:36am
An excel spreadsheet is very helpful for these types of problems.
Let's first assume that both deposits and withdrawls are made at the end of the year. (Deposits at the beginning of the year slightly change the answer, but not the methodology).
So B1 (balance at the end of year 1) = 1000.
B2 = 1000 + B1*(1.08) = B1*(1+1.08)
B3 = B1*(1+1.08+1.08^)
B10 = B1*(sum(1.08)^(n-1) n goes from 1 to 10
find B10. Now for the withdrawals.
B11 = B10*(1.08) - W
B12 = B11*(1.08) - W*1.06
= B10*(1.08)^2 - W*(1.08) - W*(1.06)
B13 = B10*(1.08)^3 - W*(1.08)^2 - W*(1.06)*(1.08) - W*(1.06)
B15 = B10*(1.08)^5 - W*[(1.08)^4 + (1.06)*(1.08)^3 + (1.06)^2*(1.08)^2 + (1.06)^3*(1.08) + 1.06^4]
solve for W such that B15=0.
You can do this with algebra or you could use Excel and plug in values and iterate until you find the right solution.
Answer this Question
- lehman - Investment A clothing company borrows $700,000. Some of the money is ...
- Math - The problem states that "5 to 8 is as 15 to w." I'm having some trouble ...
- Finance - i Craig: I am already having trouble understanding Chapter 6, problem ...
- Economics - Hi there, I am having trouble with this problem.Can you give me some...
- Math - Could someone please show how this is done or explain how to do it. thank...
- Accounting - Jane has a $35,000 bank loan that she wishes to pay off in five ...
- Math - An executive invests $24,000, some at 7% and some at 5% annual interest. ...
- algebra - An executive invests $25,000, some at 8% and some at 4% annual ...
- algebra - an executive invests $35000, some at 9% and some at 7% annual interest...
- college algebra - An executive invests $29,000, some at 8% and some at 4% annual...