In a Recent Flood Some Company Records Have Been Partially

question 12

Essay

In a recent flood some company records have been partially destroyed and it is your job to help reconstruct the missing data. For one of the company employees, Piper Jones, you have managed to gather some information regarding her pension. She currently earns $78,000 per year and expects to be paid through the company's defined benefits pension plan 7% of her final salary for each year of service. Given the state of the company, salaries are not expected to increase. You know that the pension payments should continue until her death, which actuaries expect to be when she turns 90 years old. You also know that the value of the future annuities at date of retirement should be $71,870 fulfill this commitment. Piper has just turn 55, however, you do not know her planned retirement age.
Required:
a. Determine Piper Jones planned retirement age assuming the company uses 5% interest rate for its pension plans.
b. Determine the current service cost for Piper Jones' pension for the past year (the year just before she turned 45).

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Definitions:

Agency

In economics and finance, refers to a relationship where one party, the agent, makes decisions or performs a service on behalf of another, the principal.

Cyclical Unemployment

Unemployment directly related to cycles of economic upturn and downturn.

Structural Unemployment

A form of unemployment caused by a mismatch between the jobs available and the skill levels of the unemployed, often due to technological changes or shifts in the economy.

Frictional Unemployment

Short-term unemployment occurring when individuals are between jobs or are seeking their first jobs.