Question
You can start working on a job that pays $90,000 per year now at t=0. You plan to work for the next 35 years and
You can start working on a job that pays $90,000 per year now at t=0. You plan to work for the next 35 years and you expect that your income will grow at 4.5% per year. You plan to save 15% every year and you expect to earn 4.5% per year on your savings. For computational simplicity, assume that you are paid your annual salary in a lump sum at the end of each working year How much will you have when you retire at t=35?
(b): Suppose instead of starting to work now, you decide to pursue advanced degree for two years at a cost of $90,000 a year payable at t=0 and at t=1. Assume you can also borrow at 4.5%. You expect that your advanced degree will enable you to get a job at t=2 at a starting salary of $150,000 (with the first salary paid at t=3). You expect to retire at t=35. Given your advanced degree, your income is expected to increase at 6% per year. As in part (a), you save 15% of your income and earn 4.5% per year on your savings. How much will you have when you retire at t=35?
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