1. Compute the present value of the pension obligation to these three employees as of December 31, 2024. Assume a 9% interest rate. 2. The company wants to have enough cash invested at December 31, 2027, to provide for all three employees. To accumulate enough cash, they will make three equal annual contributions to a fund that will earn 9% interest compounded annually. The first contribution will be made on December 31, 2024. Compute the amount of this required annual contribution.
1. Compute the present value of the pension obligation to these three employees as of December 31, 2024. Assume a 9% interest rate. 2. The company wants to have enough cash invested at December 31, 2027, to provide for all three employees. To accumulate enough cash, they will make three equal annual contributions to a fund that will earn 9% interest compounded annually. The first contribution will be made on December 31, 2024. Compute the amount of this required annual contribution.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Three employees of the Horizon Distributing Company will receive annual pension payments from the company when they retire. The
employees will receive their annual payments for as long as they live. Life expectancy for each employee is 15 years beyond
retirement. Their names, the amount of their annual pension payments, and the date they will receive their first payment are shown
below.
Employee
Tinkers
Evers
Chance
Annual
Payment
$ 33,000
38,000
43,000
Required:
1. Compute the present value of the pension obligation to these three employees as of December 31, 2024. Assume a 9% interest
rate.
2. The company wants to have enough cash invested at December 31, 2027, to provide for all three employees. To accumulate
enough cash, they will make three equal annual contributions to a fund that will earn 9% interest compounded annually. The first
contribution will be made on December 31, 2024. Compute the amount of this required annual contribution.
Date of First
Payment
12/31/2027
12/31/2028
12/31/2029
Note: For all requirements, use tables, Excel, or a financial calculator. Do not round intermediate calculations. Round your final
answers to nearest whole dollar amount. (FV of $1. PV of $1, FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1)
Employee
1. Tinkers
1. Evers
1. Chance
2. Amount of annual contribution
PV
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