Caroline has just turned 22 and has begun her first job. Her first year’s salary is $60,000 per year, which is paid monthly ($5,000 per month). For planning purposes: •Her future annual salary will grow at a rate of 4% per year. •She will work for 40 years and retire on her 62th birthday. •She will receive a pension payment each year for 30 years beginning on her 62th birthday. •Accounting for inflation, her first pension payment should be $150,000. •Her pension payments should increase at a rate of 2.5% per year. •She has decided to withdraw 100p% from her monthly paycheck. •She wants to use a 6% EAR as an appropriate interest rate. What is the minimum value for p (to the nearest whole percent) to fund Caroline’s plan? Ignore taxes for this analysis.
Caroline has just turned 22 and has begun her first job. Her first year’s salary is $60,000
per year, which is paid monthly ($5,000 per month). For planning purposes:
•Her future annual salary will grow at a rate of 4% per year.
•She will work for 40 years and retire on her 62th birthday.
•She will receive a pension payment each year for 30 years beginning on her 62th
birthday.
•Accounting for inflation, her first pension payment should be $150,000.
•Her pension payments should increase at a rate of 2.5% per year.
•She has decided to withdraw 100p% from her monthly paycheck.
•She wants to use a 6% EAR as an appropriate interest rate.
What is the minimum value for p (to the nearest whole percent) to fund Caroline’s plan?
Ignore taxes for this analysis.
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