Question

Nelson Won wants to withdraw $25,000 (including principal) from an investment fund at the end of each year for five years. How should he compute his required initial investment at the beginning of the first year if the fund earns 10% compounded annually

Answer 1

Initial Investment= $94,769.7

Step-by-step explanation:

Giving the following information:

Annual payment (A)= $25,000

Interest rate (i)= 10%

Number of periods (n)= 5 years

To calculate the initial investment, we need to use the following formula:

PV= A*{(1/i) - 1/[i*(1 + i)^n]}

PV= 25,000*{(1/0.1) - 1/[0.1*(1.1^5)]}

PV= $94,769.7