In December 2022, the Fed raised interest rates to their highest levels in 15 years. This makes borrowing more expensive, but makes savings more valuable. After years of near-zero interest rates on savings accounts, many banks are offering savings rates of nearly 4%. This is a pretty good risk-free return. Suppose that you deposit $10672 into a savings account that earns 4%. If interest rates do not decrease and you you withdraw your money in 40 years, what is your minimum withdrawal? In other words, how much will you withdraw if interest rates stay at 4%?
In December 2022, the Fed raised interest rates to their highest levels in 15 years. This makes borrowing more expensive, but makes savings more valuable. After years of near-zero interest rates on savings accounts, many banks are offering savings rates of nearly 4%. This is a pretty good risk-free return. Suppose that you deposit $10672 into a savings account that earns 4%. If interest rates do not decrease and you you withdraw your money in 40 years, what is your minimum withdrawal? In other words, how much will you withdraw if interest rates stay at 4%?
Time Value of Money states that a dollar earned today is more valuable than any time in the future, this is because they have earning capacity. This concept has led to another concept of annuity.
Here,
Deposit PV = $10672
Interest rate "r"= 4%
Number of yars "n" = 40
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