Stan has made a $125.30 monthly deposit into an account that pays 1.5% interest, compounded monthly, for 35 years. He would now like to draw a monthly salary from the account. Determine the amount that Stan can withdraw each month for 20 years, if he plans on not having anything in the account at the end of the 20 year period and no future deposits are made to the account.

First find the account balance after 35 years of monthly deposits. Using a monthly rate of 0.015 ÷ 12 = 0.00125 and 35 × 12 = 420 deposits, the future value is about $69,159. Then treat that balance as the present value of 240 monthly withdrawals: the payment is $69,159 × 0.00125 ÷ [1 − (1.00125)^−240] ≈ $333.71. So Stan can withdraw about $333.71 each month, choice D.

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