Question

2. (5 points) Nerwin, Inc. is a furniture manufacturing company with 50 employees. Recently, after a long negotiation with the local labor union, the company decided to initiate a pension plan as a part of its compensation plan. The plan will start on January 1, 2014. Each employee covered by the plan is entitled to a pension payment each year after retirement. On the basis of a discussion with the supervisor of the Personnel Department and an actuary from an insurance company, the controller develops the following information related to the pension plan.Average length of time to retirement10 yearsExpected life duration after retirement15 yearsTotal pension payment expected each year after retirement for all employees. Payment made at the end of the year. Amount includes all employees.$300,000 per yearThe interest rate to be used is 7%.Required:Calculate the present value of this deferred annuity (at January 1, 2014).

2. (5 points) Nerwin, Inc. is a furniture manufacturing company with 50 employees. Recently, after a long negotiation with the local labor union, the company decided to initiate a pension plan as a part of its compensation plan. The plan will start on January 1, 2014. Each employee covered by the plan is entitled to a pension payment each year after retirement. On the basis of a discussion with the supervisor of the Personnel Department and an actuary from an insurance company, the controller develops the following information related to the pension plan. 10 years 15 years Average length of time to retirement Expected life duration after retirement Total pension payment expected each year after retirement for all employees. Payment made at the end of the year. Amount includes all employees. $300,000 per year The interest rate to be used is 7%. Required: Calculate the present value of this deferred annuity (at January 1, 2014).

Answer 1

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/389.o00-Y4 AS PY Of defenred annuity a JAn-, 201y NaieAyerae length of tme to rnetine 10 yeau Enpected nife duration aften nenement 15 years LAturest nate Yh Py of defensed amuity onJan-1, 201y we Cumulcetve v factore fnom year 7o calcutate faRe need to to year 25 There fone PY- $3000oox PY IF (77, yeast- te yean -25 300000 K 4.63 - 1384 000,9

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ANSpresent yalue of de fermed annuity far jag-1-2014); $2382,80589. werkings: PV - $300000 x PYIF (74., 15 years = $ 300000 x 7.942686 = $ 2382805084