Question
a) Assume that a pension plan offers to pay $300,000 on a persons retirement (his/her sixty-fifth birthday) or a semi-annual annuity for the remainder of
a) Assume that a pension plan offers to pay $300,000 on a persons retirement (his/her sixty-fifth birthday) or a semi-annual annuity for the remainder of the persons life i.e., starting 6 months from the date of retirement and including his/her date of death. Interest rates are 6 percent compounded semi-annually, and a persons life expectancy has been determined statistically as being 80 years. Calculate the amount of the annuity that would make a person indifferent between the options?
b) A person joins a pension plan at age 35. How much will s/he have to pay into the pension fund each year in order to accumulate a balance of $250,000 by the time s/he retires (age 65)? Assume that the payments start on his/her 35th birthday and the final payment is on his/her 60th birthday. Interest rates are 6% compounded annually.
Could you please answer as if you were using a financial calculator and not excel. Thank You!
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started