Answer the following and show your work. Note that Ryan saves up $1,000,000. The

Question

Answer the following and show your work. Note that Ryan saves up $1,000,000. The wording is funny because it is continued from another question.

Here is some background from the scenario:

7. If Ryan saves up the million dollars (in terms of today's dollars) by the time of his retirement at age 65, how much can he withdraw each month (beginning one month after his retirement) in equal dollar amounts, if he figures he will live up to the age of 85 years? Assume that his investment fund yields a nominal rate of return of 7% per year.

Explanation / Answer

Ryan Savings Age 65 $        1,000,000 Rate 7% For withdrawing equal amount upto age of 85 would results in annuity consist of 20*12 = 240 periods with 7% APR on the other side 1 M savings will earn at 7% interest rate annually both should be equal i.e. 1000000*(1+7%/12)^240 = X((1+7%/12)^240 -1)/(7%/12) Formula used is P(1+i)^n & P((1+i)^n-1)/i now solving for X, 1000000*(4.038739) = X*(520.9267) x = 1000000*4.038739/520.9267 X = 7752.989048 $          7,752.99 Per month withdrawal

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