Question 6 ( 20 points )

You are 35 years old. You have just finished your B.A studies and found a new and rewarding job. You decided that it is time to set up a retirement plan. You estimate that you can deposit $1,000 in real terms each month until your retirement. You want to retire at the age of 60. You contacted a retirement agent and received the following offer: an inflation-linked plan (a real plan) which pays an annual stated real interest rate of 4.8%. Assume that the annual expected inflation is 2.43% (for the entire period).

a. According to the data you have, how much money, in real terms, will you have in your retirement plan once you retire?

Answer: At retirement, you will have $ (in real terms) in your retirement plan.

b. According to the data you have, can you estimate how much money, in nominal terms (in cash), will you have in your retirement plan once you retire?

Answer: At retirement, you will have $ (in nominal terms) in your retirement plan.

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c. Assuming that the actual inflation is the same as expected one, what is your 60th nominal contribution to the retirement plan (the amount you deposit at the end of year five, in cash)?

Answer: Your 60th contribution to the retirement plan is: $ .

d. You estimate that you will live until the age of 90. How much money, in real terms, will you be able to withdraw each month from the age of 60 until the age of 90?

Answer: You will be able to withdraw $ in real terms each month.