Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Need help. Please see pension problem below. Today's business headlines frequently cite pensions being underfunded, thus costing companies more in contributions to their pension fund

Need help. image text in transcribedPlease see pension problem below.

Today's business headlines frequently cite pensions being underfunded, thus costing companies more in contributions to their pension fund as well as pensioners risking not receiving what they had planned for retirement. This has been caused by underperformance of the pension fund itself and the over promising of benefits to retirees. Take the following example: Assume $20m was invested today to provide for pension payments for a group of employees. Assume also that the average return on these funds was 8.5% a. How big will the fund be in 25 years? b. Suppose at year 12 the fund decreased in value by 30%. What returns would be required for the next 13 years to achieve the 25 year amount? c. Advisor's counseled the company that a conservative investment return of 6% annually for the next 13 years would be advisable and that the company would have to contribute annually to make up the shortfall. How much would have to be contributed annually beginning year 13 if the fund earned 6% in order to achieve the 25 year goal

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance And Sustainability

Authors: Karolina Daszyńska-Żygadło, Agnieszka Bem, Bożena Ryszawska, Erika Jáki, Taťána Hajdíková

1st Edition

3030344037, 978-3030344030

More Books

Students also viewed these Finance questions

Question

5. Describe the relationship between history and identity.

Answered: 1 week ago