You are 25 years old and have no savings. However, you are employed, and you want to save for your retirement. At the start of each year (starting from 25th to 59th) you make payment to one fund that is expected to give a CAGR (Read: Compounded Annual Growth Rate) of 9%. Your annual savings for retirement will grow at a rate 5% per annum till you retire at 60. Once you retire, you will buy an annuity and it will start to pay you annual pension growing at 3% at the start of each year starting from 60th year.

a. If you save Rs.4Lacs per year (and it grows at 5% per year) then how much pension do you expect per year if you are expected to live till 85 years?

b. If the inflation rate is 5% per annum what is the real value of your pension when you are 60 and when you are 80 years old?

c. If you want to pay a constant yearly amount (rather than your investment towards pension fund growing at 5%) then for the same corpus how much you must invest per year? (equivalent equal annual cash flow).