Question

Homework (Submit in groups)
You are 20 and plan to work for 45 years until you retire at 65. You expect to live until you are 90.
You will collect a pension. Your annual pension payment will be equal to your final salary times a 3% crediting rate times the number of years that you work.
Your starting salary (paid at the end of the year) is $40,000. You expect to get a 4% annual raise.
Your discount rate is 5%.

Draw a timeline and Identify:
• Annual salary payment
• Time of retirement
• Annual pension payment
• Value of pension at retirement
• Value of pension today

Answer 1

	Present Value of Cash Flow =(Cash Flow)/((1+i)^N)
	i=discount rate=5%=0.05, N= Years from Present
	Salary in year 2=40000*(1+0.04)=	$41,600
	Salary in Year (N+1)=1.04*(Salary In Year (N)
	Annual Pension =40000*(1.04^44)*3%*45=	$303,292
				N1	N2	A	B	PV1=B/(1.05^N2)	PV2=B/(1.05^N1)
			Age	Years from age 20	Years from age 65	Annual Salary Payment	Annual Pension Payment	Value of Pension at retirement	Value of Pension at today(age20)
			21	1		$40,000
			22	2		$41,600
			23	3		$43,264
			24	4		$44,995
			25	5		$46,794
			26	6		$48,666
			27	7		$50,613
			28	8		$52,637
			29	9		$54,743
			30	10		$56,932
			31	11		$59,210
			32	12		$61,578
			33	13		$64,041
			34	14		$66,603
			35	15		$69,267
			36	16		$72,038
			37	17		$74,919
			38	18		$77,916
			39	19		$81,033
			40	20		$84,274
			41	21		$87,645
			42	22		$91,151
			43	23		$94,797
			44	24		$98,589
			45	25		$102,532
			46	26		$106,633
			47	27		$110,899
			48	28		$115,335
			49	29		$119,948
			50	30		$124,746
			51	31		$129,736
			52	32		$134,925
			53	33		$140,322
			54	34		$145,935
			55	35		$151,773
			56	36		$157,844
			57	37		$164,157
			58	38		$170,724
			59	39		$177,553
			60	40		$184,655
			61	41		$192,041
			62	42		$199,722
			63	43		$207,711
			64	44		$216,020
			65	45	0	$224,661
			66	46	1		$303,292	$288,849	$32,148
			67	47	2		$303,292	$275,095	$30,617
			68	48	3		$303,292	$261,995	$29,159
			69	49	4		$303,292	$249,519	$27,771
			70	50	5		$303,292	$237,637	$26,448
			71	51	6		$303,292	$226,321	$25,189
			72	52	7		$303,292	$215,544	$23,989