Question

Your father has $500,000 invested at 8%, and he now wants to retire. He wants to withdraw $50,000 at the end of each year, beginning at the end of this year. How many years will it take to exhaust his funds, i.e., run the account down to zero

Answer 1

Answer:

The number of years is about 21 years

Explanation:

A scheme that allows the withdraw fixed amount of money for a number of years is referred to as annuity

The number of years required to exhaust the fund can be determined using the present of annuity formula

PV = A × (1 - ((1+r)^(-n))/n)

where- PV- Present value, A- annual cash flow, n- number of years , r- interest rate

500,000= 50000 × (1- (1.08)^(-n)/0.08

500,000/50,000= (1- (1.08)^(-n)/0.08

10  =(1- (1.08)^(-n)/0.08

n = 21

The number of years is about 21 years