Question 4 A pension fund manager knows the following liabilities must be satisfied. The manager will invest money today in an amount sufficient to pay all of the liabilities in full. The payments are due at the end of year year. Years Years 1 11 Amount ($MM $14.25 $14.22 $14.17 2 12 Amount ($MM) $13.76 $13.78 $13.86 $13.94 $14.01 $14.04 3 13 4 14 $14.06 $13.94 5 15 6 16 $13.82 7 $14.12 17 $13.77 8 18 $13.71 $14.17 $14.25 9 19 $13.67 10 $14.30 20 $13.56 (a) If the manager can invest at an annual interest rate of 3.00%, compounded annually, how much must be invested today? (b) If interest rates increase, and the manager can invest at an annual interest rate of 4.00%, compounded annually, how much must be invested today? (c) If interest rates decrease, and the manager can invest at an annual interest rate of 2.00%, compounded annually, how much must be invested today? (d) The pension fund obligation of a corporation is calculated as the present value of the actuarially projected benefits that will have to be paid to beneficiaries. Why is the interest rate used to discount the projected benefits important