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What is the formula for the optimal saving rate

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Question - The Time Value of an Annuity - Suppose you plan to work for N1 years, and you expect to live for another N2 years after retirement. You are currently earning $W at the end of each year which grows with g1 rate per year. You want to consume $6 per year when you retire with the growth rate of g2 per year. The plan is to save a fixed percentage of your income each year to meet your retirement needs. Assume the discount rate equal to r.

Required -

Part A - What is the formula for the optimal saving rate?

Part B - Discuss intuitively how changing each parameter of the model (i.e., r, g1, g2, N1, N2, W, C) and keeping the rest constant impacts the optimal level of saving.

Reference no: EM133100398

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