Question

Assume that Social Security promises you

$ 43 comma 000$43,000

per year starting when you retire 45 years from today​ (the first

$ 43 comma 000$43,000

will get paid 45 years from​ now). If your discount rate is

7 %7%​,

compounded​ annually, and you plan to live for

1818

years after retiring​ (so that you will receive a total of

1919

payments including the first​ one), what is the value today of Social​ Security's promise?

The value today of Social​ Security's promise is

​$nothing.

​(Round to the nearest​ cent.)

Answer 1

We solve this using pv formulae in excel. Pv is nothing but the present value . First let us find the present value of the social security promise at 45 years from now .

=pv(rate,nper,pmt,fv,type)

Rate=7%

Nper=19 payments

Pmt=43000

fv=0

type=0 (since payment is at end of period)

=pv(7%,19,43000,0,0)

=444430.60

Let us find the present value of this 44 years from now since present value is 44 years from the last payment

=pv(7%,44,0,444430.60,0,0)

=22642.15