Suppose a new employee is promised a pension payment of $8000 in the twenty-fourth year after joining the firm. The current pension contribution is $2000 a year. Assuming a six percent rate of return, this pension plan is said to be

Question

Quizplus · Accepted Answer

To determine if the pension plan is fully funded, we calculate the future value of the current pension contribution of $2000 a year at a 6% rate of return over 24 years. Using the formula for the future value of an annuity: FV = P * [((1 + r)^n - 1) / r], where P = $2000, r = 0.06, and n = 24, we find that the future value exceeds $8000, indicating the plan is fully funded.

Suppose a New Employee Is Promised a Pension Payment of $8000