employees will receive their annual payments for as long as they live. Life expectancy for each employee is 14 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 $ 27,000 32,000 37,000 Date of First Payment 12/31/2027 12/31/2028 12/31/2029 Required: 1. Compute the present value of the pension obligation to these three employees as of December 31, 2024. Assume an 11% interest rate. 2 The Doco por 21 2027 to provide for all- octor

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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Vishnu 

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 14 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
$ 27,000
32,000
37,000
Date of First
Payment
12/31/2027
12/31/2028
12/31/2029
Required:
1. Compute the present value of the pension obligation to these three employees as of December 31, 2024. Assume an 11% 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 11% interest compounded annually. The first
contribution will be made on December 31, 2024. Compute the amount of this required annual contribution.
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)
Answer is complete but not entirely correct.
Employee
PV
1. Tinkers
1. Evers
1. Chance
2. Amount of annual contribution
S
S
12 12
152,999
163,362
170,169
167,181
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 14 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 $ 27,000 32,000 37,000 Date of First Payment 12/31/2027 12/31/2028 12/31/2029 Required: 1. Compute the present value of the pension obligation to these three employees as of December 31, 2024. Assume an 11% 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 11% interest compounded annually. The first contribution will be made on December 31, 2024. Compute the amount of this required annual contribution. 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) Answer is complete but not entirely correct. Employee PV 1. Tinkers 1. Evers 1. Chance 2. Amount of annual contribution S S 12 12 152,999 163,362 170,169 167,181
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