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(a) The state of confusion wants to change the current retirement policy for state employees.

(a) The state of confusion wants to change the current retirement policy for state employees. To do so however, the state must pay the current fund members the present value of their promised future payments. There are 240, 000 current employees in the state pension fund. The average employee is 16 years away from retirement and the average promised future retirement benefit is $480, 000. If the state has a discount rate of 6% on all its funds, how much money will the state have to pay to the employees before it can start a new pension plan.

(b) Two rival football fans made the following wager. If one fans' college football team wins the conference title outright, the other team fans will donate $2, 500 to the winning school. Both teams have had relatively unsuccessful teams, but are improving each season. If the two fans must put up their potential donation today and the discount rate is 7% for the funds. what is the required upfront deposit if we expect the team to win the conference title in 5 years? 8 years? 20 years?

(c) Standard insurance is developing a long life insurance policy for people who outlive their retirement nest egg. The policy will pay out $320, 000 on your 85th birthday. You must buy the policy 62nd birthday. The insurance company can earn 8% on the purchase price of your policy. What is the minimum purchase price the insurance company should charge for the policy?

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  • Thanks for your willingness to help with the question. However, wont I be required to pay another fee for posting on the advanced question section? I have been billed for this one and I would not be able to spend more money in having my questions answered having already paid. Thanks.
    • Alanhurvitz
    • Jul 20, 2016 at 1:49am

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