Question

Your friend Bob just retired after running a donut shop for 40 years. He has saved $3.5 million in his retirement accounts. Now he has his money in bond funds that have a 5% annual rate of return.
A) How much will Bob be able to withdraw at the beginning of each month for the next 30 years? Assume he will have $0 left after year 30.

Answer 1

Answer:

$18,711.57

Explanation:

The amount that the Bob will be getting at the beginning of the each month for the next 30 years shall be determined through the present value of annuity formula which shall be determined as follows:

Present value of annuity=R+R[(1-(1+i)^-n)/i]

R=Amount that he will be getting per month for next 30 years=?

i=interest rate per month=5/12=0.4167%

n=number of payment involved=30*12=360 and since the first payment is made at the start of month, therefore the n=359

Present value of annuity=$3,500,000

$3,500,000=R+R[(1-(1+0.4167%)^-359)/0.4167%]

$3,500,000=R+186.05R

$3,500,000=187.05R

R=$18,711.57=payment per month