Please answer and explain a) You belong to an unusual pension plan because your
ID: 2817192 • Letter: P
Question
Please answer and explain
a) You belong to an unusual pension plan because your retirement payments will continue forever (and will go to your descendants after you die). If you will receive $48,000 per year at the end of each year starting 30 years from now (i.e., the first payment is in time 30), what is the present value of your retirement plan if the discount rate is 5%? (b) How does your answer to part (a) change if you receive $4,000 per month every month forever (in perpetuity) starting 30 years from today (in monthly time period 360) and you compound monthly?Explanation / Answer
5a) PV of 48000 received perpetually at 30 years from now at time = 30 48000/0.05 960000 PV at time = zero $ 222,122.35 5b) PV of 4000 received per month perpetually at 30 years from now at time = 30 4000/(0.05/12) 960000 PV at time = zero $ 214,873.53