Question

Congratulations, you have just been employed! You now have a choice between a flat benefit at retirement equal to £2,000 times your years of service, or a career average formula of 3.50% of your average salary times your years of service. You expect to work 40 years. At what average salary would you be indifferent between the two alternatives?

Select one:
a. £80,000
b. £72,722
c. £57,143
d. £50,552
e. £49,488

Answer 1

To determine the average salary at which a person would be indifferent between the two retirement options, we set up an equation and solve for the average salary.

Step-by-step explanation:

To determine the average salary at which a person would be indifferent between the two retirement options, we need to set up an equation:

£2,000 * years of service = 0.035 * average salary * years of service

Simplifying the equation, we get:

£2,000 = 0.035 * average salary

Dividing both sides by 0.035:

average salary = £2,000 / 0.035

average salary ≈ £57,143

Therefore, you would be indifferent between the two alternatives at an average salary of approximately £57,143.