1) Mary Mills has retired after 35 years with the Electric Company her total pension funds have an accumulated value of $300,000, and her life expectancy is 18 more years

1) Computation of Yearly Annuity using PMT Function in Excel:

=pmt(rate,nper,-pv,fv)

Here,

PMT = Yearly Annuity = ?

Rate = 8%

Nper = 18 years 

PV = $300,000

FV = 0

Substituting the values in formula:

=pmt(8%,18,-300000,0)

PMT or Yearly Annuity = $32,010.63

2) Computation of Nominal Interest Rate:

Real Interest Rate = [(1+Nominal Interest Rate)/(1+Inflation Rate)] - 1

a) If the inflation rate is zero:

4% = [(1+Nominal Interest Rate)/(1+0)] - 1

4% + 1 = 1+Nominal Interest Rate

4% = 1+Nominal Interest Rate - 1

Nominal Interest Rate = 4% 

b) If the inflation rate is 4%:

4% = [(1+Nominal Interest Rate)/(1+4%)] - 1

4% + 1 = (1+Nominal Interest Rate)/1.04

(4%+1)*1.04 = 1+Nominal Interest Rate 

0.0416 + 1.04 = 1+Nominal Interest Rate 

1+Nominal Interest Rate = 1.0816

Nominal Interest Rate = 1.0816 - 1 

Nominal Interest Rate = 8.16% 

c) If the inflation rate is 6%:

4% = [(1+Nominal Interest Rate)/(1+6%)] - 1

4% + 1 = (1+Nominal Interest Rate)/1.06

(4%+1)*1.06 = 1+Nominal Interest Rate 

0.0424 + 1.06 = 1+Nominal Interest Rate 

1+Nominal Interest Rate = 1.1024

Nominal Interest Rate = 1.1024 - 1 

Nominal Interest Rate = 10.24% 

3) Computation of Discount Rate:

Present Value of Perpetuity = Cash Flow/Discount Rate

$125,000 = $10,000/Discount Rate

Discount Rate = $10,000/$125,000 = 8%