An investor has an account balance of 4,500,000 on his 65th birthday. On his 66th birthday, the...

Question:

An investor has an account balance of 4,500,000 on his 65th birthday. On his 66th birthday, the investor will make her first annual retirement withdrawal, and the final withdrawal will take place on her 93rd birthday. Each withdrawal would be 4% larger than the one before it. The account balance continues to earn 7% annually. Determine the withdrawal amount that occurs on the investor's 66th birthday.

Growing Annuity:

When the money receivable at regular intervals grows with time it is known as a growing annuity. The present value of a growing annuity can also be calculated by adjusting the growth rate with the required return. If an annuity is received immediately, it becomes annuity due.

Answer and Explanation: 1

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I=return

G=growth rate

N=number of years from 66 till 93 i.e. 27 years

{eq}\begin{align*} {\rm\text{PV of annuity}} &= \frac{{{\rm\text{First...

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How to Calculate the Present Value of an Annuity

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Chapter 8 / Lesson 3
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Learn how to find present value of annuity using the formula and see its derivation. Study its examples and see a difference between Ordinary Annuity and Annuity Due.


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