sorry if this is offtopic from what people normaly post here, but i'm having problems with a finance assignment. if a person is to invest 1000 dollars into a savings account of 5% annual savings in year zero he is to withdraw money during years 3,4 and 5 then during years 8, 9, and 10, all withdrawals are to be equal the balance at the end of year 10, after the final withdrawal is to be zero what is the amount of the withdrawal? i have been trying to solve this for the last 3 hours and i just dont seem to get it. any help is appreciated or, if this is way too oftopic for this forum, if someone could direct me to a suitable place that would be great.
how often is interest compounded? daily, monthly, quarterly? sounds like you'll need a financial calculator.
You might also set up the problem in a spreadsheet, and use the SOLVE function, or equivalent, to converge on the payment per period that matches the desired end balance. The ending balance, whether positive or negative, is a monotonic function of the payment per period in the vicinity of the solution, so if you get close, it should converge. Set up your spreadsheet with one line for each period, with columns for: starting balance, interest added (driven by a global cell reference that holds the interest rate per period), payment made, ending balance, then carry over the ending balance as the starting balance for the next line. Fill in your payments made as either 0, or a global reference to a cell that sets the global payment per period, then just manually fiddle with that global cell until the ending balance is 0. (if you don't want to use built-in solving.)
well using the PV=(C/r) ( 1- 1/(1+r)^t) formula t being the time periods C = payments PV= present value r= interest rate so by setting the present value to 1102.50 (interest after year 2) and T to 6, (the logic behind which i still dont understand... i think i was just trying anything) i got the number 217.2122, which, after plugging it in yields me with only 10 dollars left in my bank account, which is so far the closest i got by actualy using a formula to derive a number. i will try the spreadsheet tonight when i get home, but the assignment calls for a show of work using the formulas that we have been tought. FIY the interest is compounded annualy the main difficulty i have with this problem is the fact that there is a space inbetween the series of payments. All the formulas we have been working with so far assume a constant stream of payments, and are oftentimes solved instantly by using one equation but it would seem to me that this would be a two, if not even a three step problem, with future values being brought back to present years and all that good stuff. btw i do have a financial calculator, however beyond "pv, fv, n, i and pmt" i am clueless as to how to use it
If I remember right, you should be able to handle the space by subtracting a shorter annuity representing the payouts you don't make.
