Question

Maria Alvarez is investing $300,000 in a fund that earns 4% interest compounded annually. What equal amounts can Maria withdraw at the end of each of the next 20 years?

Short answer

Maria can withdraw $22,075 at the end of each of the next 20 years.

Step-by-step solution

Given Information

$\begin{array}{rcl}\mathit{P}\mathit{V}\mathbf{}\mathbf{-}\mathbf{}\mathit{O}\mathit{A}\mathbf{}& \mathbf{=}& \mathbf{}\mathbf{300}\mathbf{,}\mathbf{000}\\ \mathit{n}\mathbf{}& \mathbf{=}& \mathbf{}\mathbf{20}\\ \mathit{i}\mathbf{}& \mathbf{=}& \mathbf{}\mathbf{4}\mathbf{\%}\mathbf{}\end{array}$

Calculation of equal amounts Maria can withdraw

$\begin{array}{rcl}\mathit{P}\mathit{V}\mathbf{}\mathbf{-}\mathbf{}\mathit{O}\mathit{A}\mathbf{}& \mathbf{=}& \mathbf{}\mathit{R}\mathbf{}\mathbf{(}\mathit{P}\mathit{V}\mathit{F}\mathbf{}\mathbf{-}\mathbf{}\mathit{O}\mathit{A}\mathit{n}\mathbf{,}\mathit{i}\mathbf{)}\\ \mathbf{300}\mathbf{,}\mathbf{000}\mathbf{}& \mathbf{=}& \mathbf{}\mathit{R}\mathbf{\times }\mathbf{13}\mathbf{.}\mathbf{59033}\\ \mathit{R}\mathbf{}& \mathbf{=}& \mathbf{}\mathbf{\$}\mathbf{22}\mathbf{,}\mathbf{075}\end{array}$