Inheritance investment question

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flora33

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Mar 10, 2008
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Suppose you inherited $200,000 and invested it at 6% per year. How much could you withdraw at the end of each of the next 15 years?

a) $24,764.40
b) $23,431.83
c) $20,592.55
d) $17,843.15
e) $15,119.76

Does the question ask how much you can withdraw in order to maintain $200,000 yearly? If so then the way I see getting to the solution is first finding out the interest paid in the first year = $12,000 plus the interest that is compounded and paid at the end of the next year:
$212,000 * .06 = $12720

So, $12000 + $12720 = $24720

That still doesn't equal any of my choices. Any advice here? Thanks in advance.

Flora
 
Suppose you inherited $200,000 and invested it at 6% per year. How much could you withdraw at the end of each of the next 15 years?

a) $24,764.40
b) $23,431.83
c) $20,592.55
d) $17,843.15
e) $15,119.76

Does the question ask how much you can withdraw in order to maintain $200,000 yearly? If so then the way I see getting to the solution is first finding out the interest paid in the first year = $12,000 plus the interest that is compounded and paid at the end of the next year:
$212,000 * .06 = $12720

So, $12000 + $12720 = $24720

That still doesn't equal any of my choices. Any advice here? Thanks in advance

The question is really asking how much an annuity of $200,000 will pay out at the end of each year for 15 years while drawing interest of 6%, compounded annualy, not maintaining a $200,000 balance in the account.


R = Pi/[1 - (1+i)^-n] where R = the annual payment, i = the decimal equivalant of the interest rate, n = the number of payment period and P = the initial value of the annuity.

P = 200,000
i = 6.0/100 = .06
n = 15

You will find out that (c) is the correct answer.
 
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