Exercisel: Decision making based on economic engineering concepts

1. Suppose you have to decide between these two options

Optionl

Option2

2 000 will be received at the end of three years.

P dollars will be received today

If you assume that, the received money from option 2 will be deposited in an account that pays 6%

interest, what will be the value of P that make you, indifferent to your choice.

Answer

2. Suppose you think about your retirement. To decide about the amount of money that you should

save at 63 years (your retirement age), you try to predict what will be the level of prices when you

will have 63 years old.

Taking into account different elements, you decide to save $1 000 000 at 63 years (your retirement

age). To reach this target, you are making annual contributions to your retirement funds (with 7 %

return) at the age of 20.

a. Determine the amount of annual contributions

Answer

N

b. Express the required annual contribution as a function of starting age ( based on this

function, try to interpret and to assess the "Cost of waiting"

Exercisel: Decision making based on economic engineering concepts 1. Suppose you have to decide between these two options Option! Option2 2000 will be received at the end of three years. P dollars will be received today If you assume that the received money from option 2 will be deposited in an account that pays 6% interest, what will be the value of that make you, indifferent to your choice. Answer 2. Suppose you think about your retirement. To decide about the amount of money that you should save at 63 years (your retirement age). you try to predict what will be the level of prices when you will have 63 years old Taking into account different elements, you decide to save $1 000 000 at 63 years (your retirement age). To reach this target, you are making annual contributions to your retirement funds (with 7% return) at the age of 20. a Determine the amount of annual contributions Answer b. Express the required annual contribution as a function of starting age ( based on this function, try to interpret and to assess the "Cost of waiting")