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SA7 Sept 2020 Q 2 (iv)

C

Catherine Baddeley

Made first post
Hi there

I am struggling a bit with this one as the solution skips straight from the assumptions to say the fund would accumulate over 40 years to about 360k if invested in assets with a rel. high exp return. How did they get to 360k from the assumptions?

A hint would be much appreciated :) It seems from the examiners report this question was not well answered on the day.

Thanks in advance!
 
I think the examiners had the initial contribution growing at 3% pa with salary growth each year, then rolled each year's contribution up to age 65 (age 25 would get 39.5 years) at 6%. Gives about 366k. But I guess other assumptions would have been accepted if the method was correct.
 
I think the issue with this one is that the MS suggests an assumption that salaries will grow 1% over inflation, but the result is consistent with growing with inflation only. But any assumptions would have been reasonable and accepted.
 
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