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Finance Guys? Stupid Question here.

N

Nutdotnet

Diamond Member
For some reason this question is giving me a hard time. I can typically do these in my sleep, but not today!

"You are going to withdraw $5,000 at the end of each year for the next four years from an account that pays interest at a rate of 9% compounded annually. The account balance will reduce to zero when the last withdrawal is made. How much interest will you earn on the account over the four year life?"

Any help would be great!
 
Originally posted by: DannyLove
my advise, read the book not the forums 🙂

danny~!
Click to expand...


Hey Jackass, I have read the book. Or at least the chapter. There are questions similar to this but not quite like this. I'm not quite sure what the Present Value or the Future Value is so I'm a bit stumped.

🙂
 
No, because you are making interest in the meantime. If it was just $20,000, at the end of four $5000 withdrawals, there would still be money.

Edit: You are sure that is ALL the info?
 
Originally posted by: sygyzy
No, because you are making interest in the meantime. If it was just $20,000, at the end of four $5000 withdrawals, there would still be money.
Click to expand...


Exactly. That's why I can't assume the account starts with $20k, it starts with less.

 
Originally posted by: sygyzy
No, because you are making interest in the meantime. If it was just $20,000, at the end of four $5000 withdrawals, there would still be money.

Edit: You are sure that is ALL the info?
Click to expand...


That's all the info I have. It's my last question on my homework. 15 questions took about an hour, this one has taken an hour by itself. That's why I came here. I know there are people on this board MUCH smarter than me.
 
fine, I took fianace in spring, amazingly got an A, so I'll try and recall..

This problem is pretty familiar. You are not given a PV, so I think you need to work backwards with the FV as 0...?? man, how i hated finance. Sorry i know i suck in helping.

danny~!
 
What's funny is your question regards how much interest is accrued rather than how much money you START with. That is more logical to me.
 
((x*1.09) - 5000) = a
((a * 1.09) - 5000) = b
((b * 1.09) - 5000) = c
((c * 1.09) - 5000) = 0

x = the original amount
20000 - x = interest

Good luck, too lazy to do the equation myself.

edit: whoops, a tad mistake there.
 
Ah! I misread it originally. You're saying that four yearly withdrawals of exactly 5K will empty the account.

I think 16198.60 works, but I can't tell you how. I used Excel and some guessing.
 
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