Benefits and Contributions The Certainty Company (CC) operates in a world of certainty. It has just hired Mr. Jones, age 27, who will retire at age 65, draw retirement benefits for 14 years, and die at age 79. Mr. Jones' salary is $21,000 per year, but wages are expected to increase at the 6% annual rate of inflation. CC has a defined benefit plan in which workers receive 1% of the final year's wage for each year employed. The retirement benefit, once started, does not have a cost-of-living adjustment. CC earns 12% annually on its pension fund assets and uses a 10% rate to discount its expected future benefit payments. Assume that pension contribution and benefit cash flows occur at year-end. Do not round intermediate calculations. Round your answers to the nearest dollar. a. How much will Mr. Jones receive in annual retirement benefits? $ b. What is CC's required annual contribution to fully fund Mr. Jones' retirement benefits? $ c. Assume now that CC hires Mr. Smith at the same $21,000 salary as Mr. Jones. However, Mr. Smith is 50 years old. Repeat the analysis in parts a and b under the same assumptions used for Mr. Jones. What is CC's required annual contribution to fully fund Mr. Smith's retirement benefits? $ worker as the younger worker requires higher annual pension fund contributions. or older What do the results imply about the costs of hiring older versus younger workers? From a pension funding standpoint alone, CC would favor a(an) older for Ms. Brown? $ or younger d. Now assume that CC hires Ms. Brown, age 27, at the same time that it hires Mr. Smith. Ms. Brown is expected to retire at age 65 and to live to age 85. What is CC's annual pension cost. If Mr. Jones and Ms. Brown are doing the same work, are they truly doing it for the same pay? The company is actually "paying" Ms. Brown -Select- than they are paying Mr. Jones. More or Less
Benefits and Contributions The Certainty Company (CC) operates in a world of certainty. It has just hired Mr. Jones, age 27, who will retire at age 65, draw retirement benefits for 14 years, and die at age 79. Mr. Jones' salary is $21,000 per year, but wages are expected to increase at the 6% annual rate of inflation. CC has a defined benefit plan in which workers receive 1% of the final year's wage for each year employed. The retirement benefit, once started, does not have a cost-of-living adjustment. CC earns 12% annually on its pension fund assets and uses a 10% rate to discount its expected future benefit payments. Assume that pension contribution and benefit cash flows occur at year-end. Do not round intermediate calculations. Round your answers to the nearest dollar. a. How much will Mr. Jones receive in annual retirement benefits? $ b. What is CC's required annual contribution to fully fund Mr. Jones' retirement benefits? $ c. Assume now that CC hires Mr. Smith at the same $21,000 salary as Mr. Jones. However, Mr. Smith is 50 years old. Repeat the analysis in parts a and b under the same assumptions used for Mr. Jones. What is CC's required annual contribution to fully fund Mr. Smith's retirement benefits? $ worker as the younger worker requires higher annual pension fund contributions. or older What do the results imply about the costs of hiring older versus younger workers? From a pension funding standpoint alone, CC would favor a(an) older for Ms. Brown? $ or younger d. Now assume that CC hires Ms. Brown, age 27, at the same time that it hires Mr. Smith. Ms. Brown is expected to retire at age 65 and to live to age 85. What is CC's annual pension cost. If Mr. Jones and Ms. Brown are doing the same work, are they truly doing it for the same pay? The company is actually "paying" Ms. Brown -Select- than they are paying Mr. Jones. More or Less
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:Benefits and Contributions
The Certainty Company (CC) operates in a world of certainty. It has just hired Mr. Jones, age 27, who will retire at age 65, draw retirement benefits for 14 years, and die at age 79. Mr. Jones'
salary is $21,000 per year, but wages are expected to increase at the 6% annual rate of inflation. CC has a defined benefit plan in which workers receive 1% of the final year's wage for each year
employed. The retirement benefit, once started, does not have a cost-of-living adjustment. CC earns 12% annually on its pension fund assets and uses a 10% rate to discount its expected future
benefit payments. Assume that pension contribution and benefit cash flows occur at year-end. Do not round intermediate calculations. Round your answers to the nearest dollar.
a. How much will Mr. Jones receive in annual retirement benefits?
$
b. What is CC's required annual contribution to fully fund Mr. Jones' retirement benefits?
$
c. Assume now that CC hires Mr. Smith at the same $21,000 salary as Mr. Jones. However, Mr. Smith is 50 years old. Repeat the analysis in parts a and b under the same assumptions
used for Mr. Jones. What is CC's required annual contribution to fully fund Mr. Smith's retirement benefits?
$
worker as the younger worker requires higher annual pension fund contributions.
or older
What do the results imply about the costs of hiring older versus younger workers?
From a pension funding standpoint alone, CC would favor a(an) older
for Ms. Brown?
$
or younger
d. Now assume that CC hires Ms. Brown, age 27, at the same time that it hires Mr. Smith. Ms. Brown is expected to retire at age 65 and to live to age 85. What is CC's annual pension cost.
If Mr. Jones and Ms. Brown are doing the same work, are they truly doing it for the same pay?
The company is actually "paying" Ms. Brown -Select- than they are paying Mr. Jones.
More or Less
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