Question
You turned 60 years old today and decide to start saving for retirement. You deposit today (time 0) $1.0 million in a pension fund. This
You turned 60 years old today and decide to start saving for retirement. You deposit today (time 0) $1.0 million in a pension fund. This is the only deposit youd make during your lifetime. The pension fund guarantees you that you can withdraw $0.5 million per year starting with your 70th birthday (that is at time 10 on the timeline) for the next 10 years, that is the last withdrawal is on your 80th birthday (that is at time 20 on the timeline; if youre not around by then, your relatives will pick up the checks). At that point, after the last withdrawal, theres nothing left in the pension fund. Note: you are not withdrawing anything until you reached your 70th birthday. What is the interest rate that the pension fund offers on your deposit?
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