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Math Help - superannuation/pensions

  1. #1
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    superannuation/pensions

    A finance company has agreed to pay a retired couple a pension of $15000 per year for the next twenty years, indexed to inflation which 3.5% per annum.

    Immediately after the tenth annual pension payment is made, the finance company increases the indexed rate to 4% per annum to match the increased inflation rate. Given these new conditions, how much will the company have paid the couple at the end of twenty years?

    Answer: $431 235.13

    ---


    The answer i got was at least $100 000 off or so
    I'm not sure if i got the first 10 years right...
    Any help would be appreciated!
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  2. #2
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    Quote Originally Posted by ipokeyou View Post
    Answer: $431 235.13
    That answer is correct.

    x = 1st 10 years, y = last 10 years :

    x = 15000(1.035^0) + 15000(1.035^1) + ... + 15000(1.035^9)

    y = 15000(1.035^9)(1.04^1) + 15000(1.035^9)(1.04^2) + ... + 15000(1.035^9)(1.04^10)

    x + y = 431,235.13

    That's a hint...understand?
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  3. #3
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    I got the answer now My error was in the last ten years, but it's all solved now. Thanks!
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