You are the pension fund manager for a XYZ consulting company.XYZ workers will begin to retire 10 years from now.You estimate that XYZ will need $1.2 million exactly 10 years from now to fund the first year payments.Due to inflation and growth in the number of retirees, XYZ's annual obligations will grow by 5% per year, and will continue forever.Your financial advisors tell you that you can plan on earning 8.0% per year on invested funds.

As of now, XYZ has set aside $12 million to fund its pension obligations.Is this amount sufficient to meet the obligations?What, specifically, is the amount of the shortfall or excess in present value terms?

XYZ will make annual contributions (assume end-of-year) to its pension fund to ensure that it can meet the obligations.These will grow by 5% per year, and will continue forever.What should be the amount of the first contribution?