Mark wants to withdraw $6,500 at the end of three years and $8,000 at the end of five years. He wants to do this in such a way that the account balance drops to zero after the last withdrawal. Assuming that the interest rate is 5%, how much money should Mark deposit today to ensure that his needs are met?

Question

Mathematics

Wagner

27 January, 14:31

Mark wants to withdraw $6,500 at the end of three years and $8,000 at the end of five years. He wants to do this in such a way that the account balance drops to zero after the last withdrawal. Assuming that the interest rate is 5%, how much money should Mark deposit today to ensure that his needs are met?

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Answers (1)

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Melanie Roberson · Answer 1

The formula is

P=A: (1+r) ^t

A the last withdrawal is 8000

P the remaining amount 2 years ago?

R interest rate 0.05

T time 2 years

P=8,000: (1+0.05) ^ (2)

p=7,256.2358276644 this is the remaining balance that mark invested after drawing the amount of 6500

Add the withdrawal amount of 6500 to the remaining balance to get

7,256.2358276644+6,500

=13,756.235827664

Now use the formula again to find the amount invested 5 years ago

P=A: (1+r) ^t

p=13,756.235827664: (1+0.05) ^ (3)

p=11,883.15 ... answer