Mary is a waitress who,when tips are included,earns $15 per hour.Mary chooses to work 40 hours per week.Assume there are no taxes,so Mary earns $600 per week.A slowdown in the restaurant's business cuts Mary's hourly wage in half,to $7.50 per hour.To compensate Mary for the lost income,Mary's rich parents begin sending a gift of $300 per week.
Definitions:
Replacement Rate
The ratio of a retiree's pension benefit to their earning before retirement, often used to measure the adequacy of retirement income.
Present Value
The current worth of a future sum of money or stream of cash flows given a specified rate of return.
Market Rate
The prevailing price or interest rate in the market for goods, services, or securities.
Interest
The payment made for the use of (borrowed) money.
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