Anita contributes a lump sum of $50,000 and $350 per month in an investment earning 5.5% compounded monthly over a 10-year period. At the end of the 10th year, Anita plans to transfer her investment into another account where she can withdraw $4,000 per quarter for 10 years and still have $10,000 remaining. Based on quarterly compounding, determine what the rate of interest that will achieve this goal.
A) 2.39%
B) 2.89%
C) 3.39%
D) 4.39%
E) 4.89%

Question

Quizplus · Accepted Answer

The future value of Anita's investment after 10 years is calculated first using the lump sum and annuity formula. Then, using the future value as the present value for the withdrawal phase, the interest rate is determined by solving the annuity formula for the rate that allows $4,000 withdrawals per quarter for 10 years, leaving $10,000. The correct rate is 3.39%.

Anita Contributes a Lump Sum of $50,000 and $350 Per