Assume you are 25 years old and you are professionally employed. You are approached by two investment providers. Investment provider A guarantees you an annual payment of 325000 Rand (at current value) post retirement age of 65, increasing at a rate of 5% for 20 years after retirement age. Investment provider B guarantees you an annual payment of 375000 Rand (at current value) post retirement age of 65, increasing at a rate of 5% for 15 years after retirement age. Note: First payout is at age 66. Assume average annual inflation pre-retirement and post-retirement to be 7% and average investment growth to be 9%. Calculate the annual payments that need to be paid to the investment providers.
Assume you are 25 years old and you are professionally employed. You are approached by two investment providers. Investment provider A guarantees you an annual payment of 325000 Rand (at current value) post retirement age of 65, increasing at a rate of 5% for 20 years after retirement age. Investment provider B guarantees you an annual payment of 375000 Rand (at current value) post retirement age of 65, increasing at a rate of 5% for 15 years after retirement age. Note: First payout is at age 66. Assume average annual inflation pre-retirement and post-retirement to be 7% and average investment growth to be 9%. Calculate the annual payments that need to be paid to the investment providers.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Assume you are 25 years old and you are professionally employed. You are approached by two investment providers.
Investment provider A guarantees you an annual payment of 325000 Rand (at current value) post retirement age of 65, increasing at a rate of 5% for 20 years after retirement age.
Investment provider B guarantees you an annual payment of 375000 Rand (at current value) post retirement age of 65, increasing at a rate of 5% for 15 years after retirement age.
Note: First payout is at age 66. Assume average annual inflation pre-retirement and post-retirement to be 7% and average investment growth to be 9%.
Calculate the annual payments that need to be paid to the investment providers.
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