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If you want to withdraw Rs 25,000 at the end of each year for the next 7 years then what amount must you invest today at 5% compounded quarterly?
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If you want to withdraw 25 000 at the end of each year, for the next 7 years, you must invest $144 165.0453.
We can check by the following....
The interest of 5% compounded quarterly may be written as (1.0125)^4 (total interest earned after each year on amount still invested).
Amount Invested: $144 165.0453
After Year 1: $144 165.0453 x (1.0125)^4 = 151 509.5821 after one year subtract 25000. Amount still invested: $126 509.5821
After Year 2: $126 509.5821 x (1.0125)^4 = 132 954,6554 after two years subtract 25000. Amount still invested: $107 954.6554
After Year 3: $107 954.6554 x (1.0125)^4 = 113 454.4417 after three years subtract 25000. Amount still invested: $88 454.44168
After Year 4: $88 454.44168 x (1.0125)^4 = 92 960.78301 after four years subtract 25000. Amount still invested: $67 960.78301
After Year 5: $67 960.78301 x (1.0125)^4 = 71 423.068 after five years subtract 25000. Amount still invested: $46 423.068
After Year 6: $46 423.068 x (1.0125)^4 = 48 788.10684 after six years subtract 25000. Amount still invested: $23 788.10684
After Year 7: $23 788.10684 x (1.0125)^4 = 24 999.999996 after seven years subtract 25000. Amount still invested: $0.00
Last edited by musician_14 (2008-11-01 14:33:38)
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OR
Using the formula approach, you first convert your nominal rate of 5% compounded quarterly into its effective rate. Thus
You then apply the ordinary amortization formula. Thus
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