Estimate the percentage of an employee salary

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Reference no: EM13992477

Suppose that in a certain defined benefit pension plan

a. Employees work for 40 years earning wages that increase with inflation

b. They retire with a pension equal to 75% of their final salary. This pension also increases with inflation

c. The pension is received for 20 years

d. The pension fund's income is invested in bonds which earn the inflation rate.

Estimate the percentage of an employee's salary that must be contributed to the pension plan if it is to remain solvent. (Hint: Do all calculations in real rather than nominal dollars.)

Reference no: EM13992477

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