Suppose people can live in two periods. In the first period people are young and they Work. Each earns $20,000, and the payroll tax is 10%. In the second period, people are old and they retire. Retirees rely on social security benefits. The social security system is a combination of a unded pension and an unfunded investment, and the interest rate is 4%. People get the nvestment back when they retire. For the unfunded part, 50% of the payroll tax collected from young workers are paid to retirees immediately. In each period, the number of people grows by 5%, and the wage grows by 5%. In period 1 there are 100 young workers (first generation). In period 2, the first generation can get benefits from the social security program. Question: compute the benefit that a retiree of the first generation can get in period 2.
Suppose people can live in two periods. In the first period people are young and they Work. Each earns $20,000, and the payroll tax is 10%. In the second period, people are old and they retire. Retirees rely on social security benefits. The social security system is a combination of a unded pension and an unfunded investment, and the interest rate is 4%. People get the nvestment back when they retire. For the unfunded part, 50% of the payroll tax collected from young workers are paid to retirees immediately. In each period, the number of people grows by 5%, and the wage grows by 5%. In period 1 there are 100 young workers (first generation). In period 2, the first generation can get benefits from the social security program. Question: compute the benefit that a retiree of the first generation can get in period 2.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Suppose people can live in two periods. In the first period people are young and they work.
Each earns $20,000, and the payroll tax is 10%. In the second period, people are old and they
retire. Retirees rely on social security benefits. The social security system is a combination of a
funded pension and an unfunded investment, and the interest rate is 4%. People get the
investment back when they retire. For the unfunded part, 50% of the payroll tax collected from
young workers are paid to retirees immediately. In each period, the number of people grows by
5%, and the wage grows by 5%. In period 1 there are 100 young workers (first generation). In
period 2, the first generation can get benefits from the social security program.
Question: compute the benefit that a retiree of the first generation can get in period 2.
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