You Are Going to Withdraw $1,000 at the End of Each

question 411

Multiple Choice

You are going to withdraw $1,000 at the end of each year for the next three years from an account that pays interest at a rate of 8% compounded annually. How much must there be in the account
Today in order for the account to reduce to a balance of zero after the last withdrawal?

• A) $793.83
• B) $2,577.10
• C) $2,602.29
• D) $2,713.75
• E) $2,775.67

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Definitions:

Interest Rates

Interest Rates are the cost of borrowing money, expressed as a percentage of the amount borrowed, that is charged by lenders to borrowers for the use of their funds.

Senior Debt

Debt that must be repaid before subordinated debt in the case of a liquidation, generally carrying lower risk and, therefore, a lower interest rate.

Subordinated Debt

A type of debt that ranks below other debts and securities in terms of claims on assets or earnings in the event of a liquidation.

Yield To Maturity

The total return anticipated on a bond if the bond is held until it matures.