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 13 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 Required: Annual Payment $ 28,000 33,000 38,000 Date of First Payment 12/31/2027 12/31/2028 12/31/2029 1. Compute the present value of the pension obligation to these three employees as of December 31, 2024. Assume a 10% 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 10% 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) Employee 1. Tinkers 1. Eve's 1. Chance 2. Amount of annual contribution PV
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 13 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 Required: Annual Payment $ 28,000 33,000 38,000 Date of First Payment 12/31/2027 12/31/2028 12/31/2029 1. Compute the present value of the pension obligation to these three employees as of December 31, 2024. Assume a 10% 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 10% 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) Employee 1. Tinkers 1. Eve's 1. Chance 2. Amount of annual contribution PV
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 13 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
Required:
Annual
Payment
$ 28,000
33,000
38,000
Date of First
Payment
12/31/2027
12/31/2028
12/31/2029
1. Compute the present value of the pension obligation to these three employees as of December 31, 2024. Assume a 10%
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 10% 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)
Employee
1. Tinkers
1. Eve's
1. Chance
2. Amount of annual contribution
PV
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