Stan has made a $125.30 monthly deposit into an account that pays 1.5% interest, compounded monthly, for 35 years. He would now like to draw a monthly salary from the account. Determine the amount that Stan can withdraw each month for 20 years, if he plans on not having anything in the account at the end of the 20 year period and no future deposits are made to the account. a. $69,242.49 b. $69,159.05 c. $333.29 d. $333.71 Please select the best answer from the choices provided A B C D

D) $333.71

Explanation:

First we must determine the future value of the annuity:

future value = annuity x [(1 + i)ⁿ - 1] / i

annuity = $125.30

i = 1.5% / 12 = 0.00125

n = 35 years x 12 months = 420

future value = $125.30 x [(1 + 0.00125)⁴²⁰ - 1] / 0.00125

future value = $69,156.049 ≈ $69,156.05

now that we have the future value of the annuity, we can calculate the new annuity payment that Stan can receive per month:

annuity = [i x (present value)] / [1 - (1 + i)⁻ⁿ]

i = 1.5% / 12 = 0.00125n = 20 years x 12 months = 240present value = $69,156.05

annuity = (0.00125 x $69,156.05) / [1 - (1 + 0.00125)⁻²⁴⁰]

annuity = $86.45 / 0.25904 = $333.71

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