Mr Richard estimates that he will live for 18 years after his retirement

Finance Jun 07, 2021

Mr Richard estimates that he will live for 18 years after his retirement. He intends to spend all of his nest-egg of $590,000 through monthly payments from his pension fund. He budgets on the fund earning 5 per cent per annum compounded monthly. How much can he draw each month?

Group of answer choices

$4148.0

$5500.0

$4,500.0

$4374.0

Expert Solution

Computation of Monthly Payment using PMT Function in Excel:

=pmt(rate,nper,-pv,fv)

Here,

PMT = Monthly Payment = ?

Rate = 5%/12 compounded monthly

Nper = 18 years * 12 months = 216 months

PV = $590,000

FV = 0
Substituting the values in formula:

=pmt(5%/12,216,-590000,0)

PMT or Monthly Payment = $4,148

So, Monthly Payment is of $4,148. The correct option is 1st "$4,148".

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