Assume that Social Security promises you $40,000 per year starting when you retire 45 years from today (the first $40,000 will come 45 years from now) If your discount rate is 7 , compounded annually, and you plan to live for 15 years after retiring (so that you will get a total of 16 payments incl...

Plan This is a deferred annuity The cash flow timeline is 0 1 44 45 6 ...

Assume that Social Security promises you $40,000 per year starting when you retire 45 years from today

Question:

Assume that Social Security promises you $40,000 per year starting when you retire 45 years from today (the first $40,000 will come 45 years from now). If your is 7%, compounded annually, and you plan to live for 15 years after retiring (so that you will get a total of 16 payments including the first one), what is the value today of Social Security’s promise?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...