Present Value and Future Value word problem

Question

Wolverine deposits $1500 in a retirement savings plan at the end of every 6 months for 20 years. The money earns 11% per year compounded semi-annually. After 20 years, Wolverine coverts the retirement savings plan into an income fund that earns 7% per year compounded monthly. He plans to make equal withdrawals at the end of every month for 15 years. What regular withdrawals can wolverine make?

 

How would you solve this?

Answer 1

The formula for the accumulation of regular deposits =1500 ((1+i)ⁿ - 1)/i where n = 40 and i = .11/2 or .055

 

Therefore 1500 accumulates to 204,908.40 over 20 years.

 

The formula for a monthly payment amount is P = i*PV/((1-(1+i)^-n)

 

In this instance PV = 204,908.40, i = .07/12, and n = 15*12

 

Plug in the values and you will get your answer.