Original practice · fully worked
Original variant: first withdrawal funded by an arithmetic deposit schedule
A fund receives year-end deposits for ten years: 100 at year 1, then 20 more each year. At year 10 the fund is converted into six level annual withdrawals, with the first at year 11. The account earns 4% throughout. Calculate each withdrawal.
- A
357.32 - B
378.34 - C
399.36 - D
420.38 - E
441.39
Answer and calculation
Accumulating the ten arithmetic deposits to year 10 gives 2,203.66. Dividing that fund by the six-payment annuity factor gives withdrawal 420.38, choice D.
Setup
Setup
Accumulate each of the ten year-end deposits to the conversion date at year 10.
F10=k=1∑10[100+20(k−1)](1.04)10−k Model
Model
At year 10, the six withdrawals form an annuity-immediate.
F10=Wa6∣0.04 Compute
Compute
The deposit fund is 2203.66, giving annual withdrawal 420.38.
W=a6∣0.04F10=420.37518935 Answer
Answer
Each withdrawal is 420.38, selecting choice D.
W≈420.38(D)