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23 May, 17:57

Emelia Vanderpuye retired this morning and has $1.5 million in her retirement account. She expects to live thirty years in retirement and plans to leave $1 million to her children and grandchildren. What is the maximum monthly withdrawal she can make from her retirement account if she expects to earn 6 percent per year on the account? The first withdrawal will take place one month from today.

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  1. 23 May, 18:01
    0
    The applicable options are:

    $7,997.75 $5,842.50 $6,955.93 $8,799.06

    The first one,$ 7,997.75 is correct answer

    Explanation:

    The amount of monthly withdrawal can be computed using the pmt formula in excel

    =pmt (rate, nper,-pv, fv)

    rate is the monthly rate of return which is 6%/12=0.5%

    nper is the thirty years multiplied by 12 which is 360 months

    pv is the current amount in her retirement savings which is $1.5 m

    fv is the amount expected to be left in the account for children and grandchildren which is $1 m

    =pmt (0.5%,360,-1500000,1000000) = $ 7,997.75

    The amount of monthly withdrawal is 7,997.75
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