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16 September, 22:25

Arnold Rossiter is a 40-year-old employee of the Barrington Company who will retire at age 60 and expects to live to age 75. The firm has promised a retirement income of $20,000 at the end of each year following retirement until death. The firm's pension fund is expected to earn 7 percent annually on its assets and the firm uses 7% to discount pension benefits. What is Barrington's annual pension contribution to the nearest dollar for Mr. Rossiter

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  1. 16 September, 22:34
    0
    Solution:

    Find the PV (retirement) for the 15-year benefit payment:

    $20,000 (PVIFA7%, 15 years) = $182,158.28.

    Find the average payment required to collect the following sum for a span of 20 years:

    Annual payment = $182,158.28 / FVIFA 7%,

    20 years = $4,443.37

    $4,443.37 is Barrington's annual pension contribution to the nearest dollar for Mr. Rossiter
  2. 16 September, 22:41
    0
    The annual pension contribution to the nearest dollar for Mr. Rossiter is $4443

    Explanation:

    From the given data,

    we have to find PV (at retirement) of the 15 year pension payment

    PV = FV / (1+r) ⁿ

    = $20000 (PVIFA 7%, 15 years)

    After calculating we get,

    PV = $182,158.28

    Now, we have to find the annual payment to accumulate the above amount over 20 years.

    Annual payment = $182,158.28 / FVIFA 7%, 20 years

    = $4,443.37

    Therefore, The annual pension contribution to the nearest dollar for Mr. Rossiter is $4443
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