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Old 03-05-2009, 06:56 PM
LukeAnheuser LukeAnheuser is offline
Join Date: Oct 2008
College: University of Iowa Alumni
Posts: 11
Default EOM3 (Tasks 5 & 6)

So the first four tasks of EOM3 seemed pretty straight forward, but the next two are really slowing me down. And yes, this is still the chocolate factory problem.

For task 5 - It seems impossible to get the older employees to receive the proposed 70% of salary pension. Was anyone able to get an actual formula for these employees, or did you have to go completely outside the box (i.e. adding a lump sum contribution at some point, using a DB in conjunction with the DC, etc.). I could easily use one of these "alternative solutions", but that makes later calculations much more complicated, and I feel like I'm getting off task.

For task 6 - There are two factors which were simulated with Monte Carlo (Fund Return and Inflation). These two factors were simulated seperately, so using the 95% confidence interval of both factors at the same time does not give a real 95% confidence interval. I don't know if I'm supposed to use them together (which I wouldn't know how to), or if I'm supposed to calculate 2 seperate confidence intervals (one for fund rate, and another for inflation). Also, I'm assuming the spreadsheet needs to be modified since only fund rate is ordered for confidence intervals, whereas inflation simulations just provide the raw unordered data.

Any help or suggestions would be greatly appreciated.
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Old 04-29-2009, 05:43 PM
Scott_Lski Scott_Lski is offline
Join Date: Nov 2007
Posts: 212

I just qualified my results and tried to be as equitable as possible with the budgeted funds (15% of pay).

On task 6, for the 60 year old employee, his average 5 year return with 95% confidence is 1.26%...but this is not in the table of actuarial lumpsum factors, so I keep getting errors. Are we supposed to assume these returns are "real" rates of return and thus add the inflation with the fund return?
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eom 3, eom3

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