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Question 2 Zhang Wei just turned 60 and will be retiring soon. He approached you to get advice which of the two annuities he should
Question 2 Zhang Wei just turned 60 and will be retiring soon. He approached you to get advice which of the two annuities he should select: Plan Volga: On retirement, pays $1,500 at the end of each month for the next 20 years. Plan Indus: Pays $1,800 at the start of each month for the next 15 years when he turns 65. The retirement age is 62 years. Assume inflation rate is 2% per year and nominal discount rate for both annuities is 6%. (a) Appraise which plan Zhang Wei should select. You are required to use Excel to solve this problem. (17 marks) (6) Verify whether the real discount rate should be higher or lower than 6% using an appropriate method. Indicate the reason that the method is chosen. (5 marks) Question 2 Zhang Wei just turned 60 and will be retiring soon. He approached you to get advice which of the two annuities he should select: Plan Volga: On retirement, pays $1,500 at the end of each month for the next 20 years. Plan Indus: Pays $1,800 at the start of each month for the next 15 years when he turns 65. The retirement age is 62 years. Assume inflation rate is 2% per year and nominal discount rate for both annuities is 6%. (a) Appraise which plan Zhang Wei should select. You are required to use Excel to solve this problem. (17 marks) (6) Verify whether the real discount rate should be higher or lower than 6% using an appropriate method. Indicate the reason that the method is chosen
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