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Required information [ The following information applies to the questions displayed below. ] I only get one shot at this? you wonder aloud. Martina, human
Required information
The following information applies to the questions displayed below.
"I only get one shot at this?" you wonder aloud. Martina, human resources manager at Covington State University,
has just explained that newly hired assistant professors must choose between two retirement plan options. "Yes, Im
afraid so Martina concedes. "But you do have a week to decide."
Martina's explanation was that your two alternatives are the state's defined benefit plan and a defined
contribution plan under which the university will contribute each year an amount equal to of your salary. The
defined benefit plan will provide annual retirement benefits determined by the following formula: years of
service salary at retirement.
"It's a good thing I studied pensions in my accounting program," you tell Martina. "Now let's see. You say the state is
currently assuming our salaries will rise about a year, and the interest rate they use in their calculations is
And, for someone my age, you say they assume lll retire after years and draw retirement pay for years. I'll do
some research and get back to you."
Note: Use tables, Excel, or a financial calculator. FV of $ PV of $ FVA of $ PVA of $ FVAD of $ and
PVAD of $
Hint: The calculations are greatly simplified using an electronic spreadsheet such as Excel. There are many ways to
set up the spreadsheet. One relatively easy way is to set up the first few rows with the formulas as shown below,
then use the "fill down" function to fill in the remaining rows, and use the Insert: Name: Define: function to name
column B Since contributions are assumed made at the end of each year, there are years remaining to
maturity at the end of Note that multiplying each contribution by where equals the remaining number
of years to retirement, calculates the future value of each contribution invested at until retirement.
Required:
You were hired at the beginning of at a salary of $ If you choose the state's defined benefit plan and projections hold
true, what will be your annual retirement pay? What is the present value of your retirement annuity as of the anticipated retirement
date end of
Suppose instead that you choose the defined contribution plan. Assuming that the rate of increase in salary is the same as the state
assumes and that the rate of return on your retirement plan assets will be compounded annually, what will be the future value of
your plan assets as of the anticipated retirement date end of What will be your annual retirement pay assuming continuing
investment of remaining assets at
Answer is complete but not entirely correct.
Complete this question by entering your answers in the tabs below.
Suppose instead that you choose the defined contribution plan. Assuming that the rate of increase in salary is the same as the
state assumes and that the rate of return on your retirement plan assets will be compounded annually, what will be the
future value of your plan assets as of the anticipated retirement date end of What will be your annual retirement pay
assuming continuing investment of remaining assets at
Note: Round your answers to the nearest whole dollar amount. Do not round your intermediate calculations.
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