Asked by Naderay Atefi on Apr 23, 2024
Verified
If you have $45,000 earning 9.6% compounded monthly, how much money could you take out of the investment at the end of every year for 10 years?
A) $8,820
B) $7,334
C) $2,819
D) $7,198
E) $2,878
Compounded Monthly
Interest calculation on the principal and any previously earned interest, which is applied once a month.
Withdrawal
The act of removing funds from an account, plan, or deposit.
Investment
The process of distributing assets, typically funds, in anticipation of earning revenue or gains.
- Gain insight into the process for evaluating the future value of investments with uniform contributions.
- Determine the duration of payments or withdrawals for investments and loans based on compound interest calculations.
Verified Answer
CM
Chantelle Mzizi8 days ago
Final Answer :
B
Explanation :
To solve this, we use the formula for the annuity payment from a present value, which is P = [rPV] / [1 - (1 + r)^-n], where P is the payment, PV is the present value, r is the monthly interest rate, and n is the total number of payments. Here, PV = $45,000, r = 9.6% annual interest rate compounded monthly (which is 0.096/12 per month), and n = 10 years * 12 months/year = 120 months. Plugging these values into the formula gives us the annual withdrawal amount, which is approximately $7,334.
Learning Objectives
- Gain insight into the process for evaluating the future value of investments with uniform contributions.
- Determine the duration of payments or withdrawals for investments and loans based on compound interest calculations.