exercise: PV&pension

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petro2000

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There was an exercise in the afternoon exam:

after going to pension xy wants to take $100 000/year for 20 years, interest rate 5%
collected to date $500 000, expected interest rate 7%
annual savings until pension (10 years remained) $15 000

What is the interest rate on savings, if I remember well the question.

10%, 12%, 14%, 16% ?
 
I don't remember the particulars of that question but based on the data you identify I conclude the answer is 12%.

PV of twenty $100,000 payments = $1,246,221

In ten years the $500k will grow to: $983,576

Difference = $262,645

Simple TV calculation:

n = 10
pv = 0
pmt = -15,000
fv = 262,645
solve for "i" = 11.95 (round to 12).
 
I dont remember the exam choices in that question neither, but the way Tenshi did it seems fine.
 
i think it was the first quant question(if i m right), but i can;t work it out....so i just guess in this question..
 
testami says "In ten years the $500k will grow to: $983,576".

That essentially says rate was 7.00%.

Why did you use 7% for the $500K?
 
SOoooooooooo pissed on this one. I had it so close, but didn't realize I had to subtract to find the difference. F*ck me...I can't believe it was that 500K that screwed me...I thought he was starting with that and it was growing to $1.2 MM or whatever it was after you found the PV of the second 20 years...then I was trying to discount it back to $500K in 10 years. DAMN!!!
 
I was short of time and didn't read the question carefully. Dang.
 
Of course if hypothetically the 20 year annuity was an annuity due ie started paying at t=20 then would the answer be closer to 16%?
 
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