Funding Withdrawals

Question

Find the amount necessary to fund the given withdrawals.

 

Quarterly withdrawals of $550 for 5 years; interest rate is 6.6% compounded quarterly.

 

The amount necessary to fund the given withdrawals is $0

 

Answer 1

If you are using a financial calculator this is a snap.

N= 20 (5 years X 4 Quarters)
I= 1.65 % (6.6% per annum / 4 Quarters per year)
PV= What we are looking for
PMT= $550. (Given)
FV= 0=Zero (do not forget this step)

Answer =$9,304.59

Reality check.

At zero interest rate we will need 20 X $550 to make the withdraws that is $11,000.
Do we need something more or less than $11,000?
In a loan interest is working against us.
In this case interest is our ally. We get to make interest on the initial deposit so the amount will be less than $11,000. Which it is.

If the question was “what will $550 per quarter grow to?” The answer would have been $12,907.58
If the question was what are the payments on a loan of $11,000 the answer would have been $650.22
Try the alternative questions and answers.