You plan on making a $235.15 monthly deposit into an account that pays 3.2% interest, compounded monthly, for 20 years. At the end of this period, you plan on withdrawing regular monthly payments. Determine the amount that you can withdraw each month for 10 years, if you plan on not having anything in the account at the end of the 10 year period and no future deposits are made to the account.

First find the balance after 20 years of monthly deposits: use the future value of an ordinary annuity, with monthly rate 0.032/12 and 240 deposits. This gives about $78,910.41. Then treat that balance as the present value of 120 monthly withdrawals: payment = $78,910.41 × (0.032/12) ÷ [1 − (1 + 0.032/12)⁻¹²⁰], which is about $769.27 per month. The correct choice is $769.27.

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