## Question:

Ida Ho is about to retire from a government job with a pension that is indexed to the Consumer Price Index (CPI). She is 60 years old and has a life expectancy of 25 years. Estimate the current economic value of her pension, which will start at $20,000 per year. For the purpose of this estimation, assume that Ida will draw the pension for 25 years, the annual pension will be paid in a single year-end payment, the CPI will rise 2.5% per year, and money is worth 5% compounded annually. How much of the current economic value comes from indexing?