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.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 10P

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