Question 1
A man aged exactly 30 joins a pension scheme which provides a retirement
benefit of 10 times his annualised salary at the normal retirement age, 55. Thus,
if his annualised salary at the retirement date is Kes 1 million, the retirement
benefit payable is Kes 10 million.
His salary is paid continuously and increases continuously at the rate of 8% p.a.
To fund for the retirement benefit, a constant percentage of his salary is
deducted continuously from his salary and invested immediately in a fund to earn
a rate of 10% p.a. What constant rate of deduction (contribution) is required to
fund the retirement benefit?
You may assume that the man remains in employment until exact age 55 and
that interest is earned continuously.
What amount of money should be held in respect of the man’s retirement benefit
when the man is aged exactly 40?
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