Thread: Financial Mathematics

HI,

I am having a bit of bother with this question I was wondering if anyone could help.

A saver has €120000 invested and starts withdrawing it at a rate of €2000 per month at the end of each month. If the nominal annual interest rate is 6% compounded monthly, how many full withdrawals can be made? Estimate the final amount withdrawan which will be less than €2000.

Thanks in advance

mathematicly the problem must not be out of reach but i think that if you want an awnser you should give a definition of the words your are employing:
many forumers are not customed whith financial terms
and many are not english mother tounged!
but i'm sure many could anwser your question if it would be express in a language that they coul understandd

Standard Formulas



n is a number of months

i is monthly interest: i = .06/12 = 0.005

v is monhtly discount: v = 1/(1+i)

S = 120000

A = 2000

But first, you should estimate it.

120000/2000 = 60 -- Okay, we should get more than 60, but not a lot more.

Plug everything in and solve for 'n'. I get 71.513. This means 71 complete payments and one extra smaller one. You tell me how to find that last payment size.

That looks pretty good to me! I never seen that formula before but it looks right. thanks very much.

The last payment could be 2000 * 0.513 which would be 1026

Originally Posted by flinted

The last payment could be 2000 * 0.513 which would be 1026

I guess if all you need is an estimate, that will do. That is NOT the exact value and an astute customer will observe that you have just stolen some of his money. What is the EXACT value? Exercise left to the student.

It is not good that you have not seen this formula. It is standard fair for annuities with equal and periodic payments. Really, it is just the sum of a finite geometric series. You should learn where it comes from.