
B-134 SOLUTIONS
Now we need to find the monthly interest rate in retirement. We can use the same procedure that we
used to find the monthly interest rates for the stock and bond accounts, so:
(1 + R) = (1 + r)(1 + h)
APR = m[(1 + EAR)1/m – 1]
Now we can find the real monthly withdrawal in retirement. Using the present value of an annuity
equation and solving for the payment, we find:
PVA = C({1 – [1/(1 + r)]t } / r )
This is the real dollar amount of the monthly withdrawals. The nominal monthly withdrawals will
increase by the inflation rate each month. To find the nominal dollar amount of the last withdrawal,
we can increase the real dollar withdrawal by the inflation rate. We can increase the real withdrawal
by the effective annual inflation rate since we are only interested in the nominal amount of the last
withdrawal. So, the last withdrawal in nominal terms will be:
FV = PV(1 + r)t
Calculator Solutions
3.
Enter 10 8.75% $75 $1,000
N I/Y PV PMT FV
4.
Enter 9 ±$934 $90 $1,000
N I/Y PV PMT FV
5.
Enter 13 7.5% ±$1,045 $1,000
N I/Y PV PMT FV
Solve for $80.54