JTD Began Working for XYZ at Age 45 and Immediately

question 35

Essay

JTD began working for XYZ at age 45 and immediately qualified for the company pension plan.The retirement age in the company is 65 (i.e., 20 full years of employment for JTD).The pension specifies a $30,000 annual (year-end)pension benefit for JTD and the life expectancy is age 80 (i.e., the pension benefit will be paid for 15 years).Assume a constant 8% interest rate during the 20 working years, and a 7% constant rate during the retirement years per the actuarial estimates (assume all cash flows at year-end).XYZ plans to fund a constant amount per period at each year-end during the employment period.
Required:
(a)What amount of funds should be in the pension fund at the beginning of the first retirement year?
(b)What amount should XYZ pay to the funding agency each year-end during the employment period?
(c)Is it possible to determine pension expense for the first year of the plan?

---

Definitions:

Loss

A situation where expenses exceed revenues, resulting in negative financial performance.

Ad Valorem Tariff

A tax placed on goods based on a percentage of the goods' value.

Import Quota

An import quota is a government-imposed limit on the quantity or monetary value of a particular good that can be imported into a country within a specified time frame.

World Price

The global market price of a good or service, determined by worldwide supply and demand.