Question
Carla manages the defined benefit program for the employees of the Cleveland school district. At the beginning of 2020, the pension plan was expecting that
Carla manages the defined benefit program for the employees of the Cleveland school district. At the beginning of 2020, the pension plan was expecting that they would be obligated to make disbursements of $1 million, $2 million, $2 million, $3 million, and $4 million at the end of each of five consecutive years. The first disbursement will be made at the end of 2020.
i. Find the duration of the plans obligations at the beginning of 2020 if the interest rate was 0.67% annually.
ii. If the Fed had increased the annual interest by a quarter of a percentage point, how much would the value of the pension obligations have changed?
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