Texts: Assume that you have just turned 25 years old and recently started your first job. In order to celebrate this occasion, you decide to start saving for your retirement. You decide to save the £1500 you have in your bank account today and then save another £1500 after one year. Beyond that point, your savings activity will continue with an annual growth rate of 2.5%. Assume that you will only be able to save until the age of 55. After that point and until you reach retirement, at the age of 65, you will only be able to cover your expenses. Furthermore, assume that your life expectancy is 85 years and that you want to finance your retirement years with your savings. However, during your retirement years, the economy will suffer from inflation of 1% per year, and the purchasing power of money will decrease. Answer all the following questions assuming that the nominal annual interest rate is 5% for all time periods.
a. Calculate the present value (PV) of your savings for the period that starts today and ends when you reach the age of 55.
b. Calculate the future value (FV) of your savings when you reach retirement age, at 65.
c. Calculate the inflation-adjusted (real) rate of return.
d. Find the annual real amount of money that you will be living with during your retirement years.