On December 31, 2020, Stormy & Co. started a defined benefit plan for its president. The plan provides for an annual pension to the executive, equal to 2% of the executive’s highest lifetime salary multiplied by number of years of service within the entity. On date of establishment, the president already has worked for ten years, and his current salary as of this date is P500,000. The president is expected to retire in 25 years, and his/her salary is expected to increase by 3% on average. He/she is also estimated to have a life expectancy of 15 years after retirement and will receive his/her annual pension at the end of each year after retirement. Market yield of high-quality corporate bonds is 8%. Below is the relevant PV and Future Value (FV) factors: · Future value of 1 at 3% for 25 periods: 2.094 · PV of an ordinary annuity at 8% for 15 periods: 8.559 · PV of 1 at 8% for 25 periods: 0.146 How much is the projected benefit obligation upon establishment of the defined benefit plan on December 31, 2020? a. 124,961 b. 100,000 c. 261,669 d. 209,400
On December 31, 2020, Stormy & Co. started a defined benefit plan for its president. The plan provides for an annual pension to the executive, equal to 2% of the executive’s highest lifetime salary multiplied by number of years of service within the entity. On date of establishment, the president already has worked for ten years, and his current salary as of this date is P500,000. The president is expected to retire in 25 years, and his/her salary is expected to increase by 3% on average. He/she is also estimated to have a life expectancy of 15 years after retirement and will receive his/her annual pension at the end of each year after retirement. Market yield of high-quality corporate bonds is 8%. Below is the relevant PV and Future Value (FV) factors: · Future value of 1 at 3% for 25 periods: 2.094 · PV of an ordinary annuity at 8% for 15 periods: 8.559 · PV of 1 at 8% for 25 periods: 0.146 How much is the projected benefit obligation upon establishment of the defined benefit plan on December 31, 2020? a. 124,961 b. 100,000 c. 261,669 d. 209,400
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
On December 31, 2020, Stormy & Co. started a defined benefit plan for its president. The plan provides for an annual pension to the executive, equal to 2% of the executive’s highest lifetime salary multiplied by number of years of service within the entity. On date of establishment, the president already has worked for ten years, and his current salary as of this date is P500,000.
The president is expected to retire in 25 years, and his/her salary is expected to increase by 3% on average. He/she is also estimated to have a life expectancy of 15 years after retirement and will receive his/her annual pension at the end of each year after retirement.
Market yield of high-quality corporate bonds is 8%. Below is the relevant PV and Future Value (FV) factors:
· Future value of 1 at 3% for 25 periods: 2.094
· PV of an ordinary annuity at 8% for 15 periods: 8.559
· PV of 1 at 8% for 25 periods: 0.146
How much is the projected benefit obligation upon establishment of the defined benefit plan on December 31, 2020?
The president is expected to retire in 25 years, and his/her salary is expected to increase by 3% on average. He/she is also estimated to have a life expectancy of 15 years after retirement and will receive his/her annual pension at the end of each year after retirement.
Market yield of high-quality corporate bonds is 8%. Below is the relevant PV and Future Value (FV) factors:
· Future value of 1 at 3% for 25 periods: 2.094
· PV of an ordinary annuity at 8% for 15 periods: 8.559
· PV of 1 at 8% for 25 periods: 0.146
How much is the projected benefit obligation upon establishment of the defined benefit plan on December 31, 2020?
a. 124,961
b. 100,000
c. 261,669
d. 209,400
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