Question

Spital Corporation is required to pay the pension cost of one of its unionized employees. According...

Spital Corporation is required to pay the pension cost of one of its unionized employees. According to the terms of the union contract, the employee will retire in four years and receive $60,000 at the end of the nine consecutive years following retirement. Interest is compounded annually. Compute the pension obligation that Spital has incurred today if the discount rate is 10%. Please show steps.

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Answer #1

Answer) $17379.86

Explanation:

Amount is needed to be paid after 13 years from now i.e. 4 year for retirement and 9 consecutive years following that. Therefore we just need to find the present value of $60000 to be paid after 13 years at 10% discount rate.

Present value formula= C/(1+r)n

Where C = future value

r = discount rate

n = number of years

PV = 60000/(1+0.1)13

PV = 17379.86

therefore pention obligation that spital has incurred today will be $17379.86

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