On 1st of January 2018 an individual knows that she will retire in 10 years and will receive a state pension at a rate of £10,000 per year, paid in equal monthly instalments at the beginning of each month, and starting on 1st of January 2028. The annual effective rate is 3% p.a. (a) Assuming that the pension is paid for 20 years (i.e. the last payment is on 1st of December 2047), compute the value on 1st of January 2018 of the state pension. In order to increase the overall retirement income the individual also decides to purchase an annuity on 1st of January 2018, as a form of private pension. (b) Without lengthy calculations, explain how much the investor would need to pay, on 1st January 2018, towards the private pension, if she wants to double her future retirement income until 1st December 2047 (retirement income includes the state pension from above).
On 1st of January 2018 an individual knows that she will retire in 10 years and will receive a state pension at a rate of £10,000 per year, paid in equal monthly instalments at the beginning of each month, and starting on 1st of January 2028. The annual effective rate is 3% p.a.
(a) Assuming that the pension is paid for 20 years (i.e. the last payment is on 1st of December 2047), compute the value on 1st of January 2018 of the state pension. In order to increase the overall retirement income the individual also decides to purchase an
(b) Without lengthy calculations, explain how much the investor would need to pay, on 1st January 2018, towards the private pension, if she wants to double her future retirement income until 1st December 2047 (retirement income includes the state pension from above).
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