What Is the Total Pension Expense for the Following Plan

question 35

Multiple Choice

What is the total pension expense for the following plan after 5 years? "The plan requires the company to contribute $500 for each of its 1,000 employees. The plan hopes to accumulate enough funds so that each retiree receives $20,000 in the future; the company has no obligation to guarantee the investment returns."

• A)$2,500
• B)$100,000
• C)$2,500,000
• D)$20,000,000

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Definitions:

Accept

In financial terms, it often refers to a bank's agreement to honor a draft or other financial instrument payable at a future date.

Net Present Value

The difference between the present value of cash inflows and outflows over a period of time, used in capital budgeting to assess profitability of investments.

Initial Investment

The amount of money used to start a new venture, purchase an asset, or stock in a portfolio, serving as the foundation for future financial performance and returns.

Present Value

The present worth of a future amount of money or series of cash flows when a certain rate of return is applied.