Former student Ravi sent me this item about Tiger Woods' possible pension funds. It asserts, in part,
If Woods keeps winning at his current rate, enjoys a nine percent annual return and captures just seven FedEx Cups in his career, he could reach $1 billion in retirement payouts courtesy of the PGA Tour Inc.Nine percent? NINE PERCENT??? Using the Fisher Equation (named for its discoverer, Professor Equation), that means (assuming a real rate of interest of about 3%) that they think the expected rate of inflation will be about 6% over the rest of Tiger Woods' career. I don't really know of many people who expect the rate of inflation to be that high, and the money markets certainly imply a much lower expected rate of inflation with long-term nominal rates down around 5% or so.
What kind of risk do they assume Tiger Woods is willing to assume to get that kind of return? Are they thinking he will place his entire nest egg in sub-prime mortgages (I gather many are available cheap these days)? Or did they just keep messing with different interest rates until they found one that yielded the desired results?