You have just received an inheritance of $28,000 and would like to invest it into an account. the bank offers two investment plans, one for 4 years at 5.8% compounded annually and another for 3 years at 7.083% compounded annually. you want to make equal annual withdrawals from the account over the life time of the loan. which investment will yield the highest annual withdraw and by what amount, given that the account will be zeroed out by the end of that period? round your answer to the nearest cent.
a.
4 year account; $8,043.59
c.
4 year account; $10,436.34
b.
3 year account; $10,685.63
d.
3 year account; $8,281.88

Option B. 3 year account; $10,685.63

Step-by-step explanation:

We will use the formula of Present Value of Annuity

P =

Now solve for first plan for 4 years at 5.8% compounded annually.

where

P = Present value of annuity (28,000)

PMT = the amount of each annuity payment

r = rate per period  (5.8%) = 0.058

n = number of periods (4 years)

Hence

PMT = P ÷

= 28,000÷

=

=

=

=

= 8,043.58728  ≈ $8,043.59

Now solve for second plan 3 years at 7.083% compounded annually.

= 28,000÷

=

=

=

=

= 10,685.63007 ≈ $10,685.63

Second investment would yield the highest annual withdraw by $10,685.63.

Option B. 3 year account; $10,685.63

its a trick question

step-by-step explanation:

dogs love water, just turn on the hose and it will run in circles chasing the water all day : )