Question

Helen has just retired with $500 000 in her account and wishes to start an annuity. She intends to withdraw $M at the end of each year for 30 years. Reducible interest is calculated at 6% p.a., compounded annually just before each withdrawal.
a) Calculate $M, the amount of each withdrawal.
b) After her 15th withdrawal, the interest rate on the annuity reduces to 4% p.a. Helen is informed that to continue to withdraw $M, the life of the annuity must also reduce. For how many more years will Helen be able to withdraw money from this annuity.

Can someone please confirm my answer for b). I got 12.5 years. If it is wrong can you please provide the solution for b) thanks.

Answer 1

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