How much can Gary withdraw each month from his inheritance of $200,000 if it earns a 12% annual rate of return over five years?

How much can Gary withdraw each month from his inheritance of $200,000 if it earns a 12% annual rate of return over five years?

• A. $4,448.89
• B. $49,537.45
• C. $55,481.95
• D. $4,404.84

Answer: (D)

To determine how much Gary can withdraw each month from his inheritance while allowing it to grow interest at an annual rate of 12% over five years, it’s essential to use the concept of annuities. The scenario involves calculating the monthly withdrawals from an investment that will deplete the principal over the specified period, factoring in the interest earned. First, we should establish that the annual interest rate of 12% translates to a monthly interest rate of 1% (12% divided by 12 months). Over five years, which comprises 60 months, Gary plans to make regular withdrawals. The formula used to calculate the monthly withdrawal amount (or annuity payment) is: PMT = P * (r(1 + r)^n) / ((1 + r)^n - 1) Where: - PMT is the monthly withdrawal amount. - P is the principal amount (in this case, $200,000). - r is the monthly interest rate (0.12 annual will be 0.01 monthly). - n is the total number of withdrawal periods (in this case, 60 months). By substituting the values into the formula, we calculate the monthly withdrawal amount. This formula effectively balances the withdrawal against the

To determine how much Gary can withdraw each month from his inheritance while allowing it to grow interest at an annual rate of 12% over five years, it’s essential to use the concept of annuities. The scenario involves calculating the monthly withdrawals from an investment that will deplete the principal over the specified period, factoring in the interest earned.

First, we should establish that the annual interest rate of 12% translates to a monthly interest rate of 1% (12% divided by 12 months). Over five years, which comprises 60 months, Gary plans to make regular withdrawals.

The formula used to calculate the monthly withdrawal amount (or annuity payment) is:

PMT = P * (r(1 + r)^n) / ((1 + r)^n - 1)

Where:

• PMT is the monthly withdrawal amount.

• P is the principal amount (in this case, $200,000).

• r is the monthly interest rate (0.12 annual will be 0.01 monthly).

• n is the total number of withdrawal periods (in this case, 60 months).

By substituting the values into the formula, we calculate the monthly withdrawal amount. This formula effectively balances the withdrawal against the