Assume that Linus lives to be 100 and that real interest rates will stay at 5% per year throughout his life. If he takes a job at the local grocery store, his starting wage will be $40,000 per year, and he will get a 3% raise each year, in real terms, until he retires at the age of 53.

i. Calculate the present value of Linus's lifetime earnings, using a spreadsheet or using the growing annuity formula

ii. Use that value to determine Linus's permanent income, i.e., how much can Linus spend each year equally over the rest of his life?

I am getting 2 different answers for PV - $979,800 and $1,008,370

Also, the find permanent income, do we just divide by 82 or use a formula for the PMT using the 5% discount rate?

Answer rating: 100% (QA)

To calculate the present value PV of Linuss lifetime earnings we can use the growing annuity formula ... View the full answer