The Apex Company has just hired Mr. Smith, who is age 25 and is expected to retire at age 60. Mr. Smith's current salary is $30,000 per year, but his wages are expected to increase by 5 percent annually over the next 35 years. Apex has a defined benefit pension plan in which workers receive
2 percent of their final year's wages for each year of employment. Assume a world of certainty. Further, assume that all payments occur at year-end. What is Mr. Smith's expected annual retirement benefit, rounded to the nearest thousands of dollars?

Question

Quizplus · Accepted Answer

Mr. Smith's final year's salary can be calculated using the formula for compound interest: Final Salary = $30,000 * (1 + 0.05)^35. This results in approximately $150,000. The retirement benefit is 2% of the final salary for each year worked, so 2% * 35 years * $150,000 = $105,000, which rounds to $116,000.

The Apex Company Has Just Hired Mr