Your account pays interest at a rate of 5 percent per year and the interest is computed once a year

Finance May 27, 2021

Your account pays interest at a rate of 5 percent per year and the interest is computed once a year. You deposit $5.000 in the account today. If you are allowed to withdraw money at the end of the first and second year only, how much should you withdraw at the end of the first year to ensure that you have exactly $3,000 in the account at the end of the second year?

Expert Solution

Computation of Amount of Withdrawn at the End of First Year:

Let X be Amount of Withdrawn at the End of First Year.

So,

5,000*(1.05)^2 = X*(1.05) + 3,000

5,512.50 - 3,000 = X*1.05

2,512.50/1.05

X = $2,392.86

So, Amount of Withdrawn at the End of First Year = $2,392.86

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