Yianni has funds in his superannuation account and is considering purchasing a pension.
In exchange for a lump sum payment now, Polysuper offers an annual pension over twenty years beginning with a payment of $61,000 at the end of the first year.
There are twenty payments in total and the payments will increase at an annual rate of 2.5%pa.
The appropriate opportunity cost of funds is j_2 = 9%pa what is the amount of the lump sum needed today to purchase this pension?