Assume a employee has a salary of $ 75,000. The employee's salary is expected to grow at 2.5% per annum. The employee is expected work 25 yearsand then retire. The pension program provides the employee a defined benefit equal to 2.0% of his salary in year 25 for each year worked. Theemployee has a expected life expectancy of 35 years at retirement. The firm uses a 4% discount rate to determine pension obligations.The firm anticipates depositing $9,000 at the end of each year to fund their retirement obligation. Funds are expected to earn and do earn 6.0 per centper annum.1.2.3.4.5.What is the pension cost in years 2 and 3What is the over(under) pension funding at the end of year 3.Explain the logic for each of the three components of a firm's pension expense in any given yearChange the discount rate to 5%. (corrected from an earlier posting that had it at 4%) What is the $ change in the underfunding in year 3?Explain the logic of the change in underfunding.

To calculate the pension cost in years 2 and 3, we need to determine the present value of the…

1. 2. 3. 4. 5. What is the pension cost in years 2 and 3 What is the over(under) pension funding at the end of year 3. Explain the logic for each of the three components of a firm's pension expense in any given year Change the discount rate to 5%. (corrected from an earlier posting that had it at 4%) What is the $ change in the underfunding in year 3? Explain the logic of the change in underfunding.

1. 2. 3. 4. 5. What is the pension cost in years 2 and 3 What is the over(under) pension funding at the end of year 3. Explain the logic for each of the three components of a firm's pension expense in any given year Change the discount rate to 5%. (corrected from an earlier posting that had it at 4%) What is the $ change in the underfunding in year 3? Explain the logic of the change in underfunding.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 4P

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