Maestro Superannuation Plan provides the following information relating to the period ended 30 June 2014: $$\begin{array} { | l | r | }
\hline \text { Gross benefit payment to an individual based on an actuarial analysis as at 30 June } 2014 & \$ 400000 \
\hline \text { Commonwealth government guaranteed securities } & 5 \% \
\hline \text { Current anticipated rate of return on assets (for the period of the benefit liability) } & 8 \% \
\hline \text { Quality corporate bond rate for the period of the benefit liability } & 7 \% \
\hline
\end{array}$$ The actuarial assumption used to calculate the liability was that the individual would take the benefit as a lump sum on retirement in 10 years' time.What is the present value of the expected future benefit payment (rounded to the nearest dollar)?

Question

Maestro Superannuation Plan provides the following information relating to the period ended 30 June 2014: $$\begin{array} { | l | r | } 
\hline \text { Gross benefit payment to an individual based on an actuarial analysis as at 30 June } 2014 & \$ 400000 \
\hline \text { Commonwealth government guaranteed securities } & 5 \% \
\hline \text { Current anticipated rate of return on assets (for the period of the benefit liability) } & 8 \% \
\hline \text { Quality corporate bond rate for the period of the benefit liability } & 7 \% \
\hline
\end{array}$$ The actuarial assumption used to calculate the liability was that the individual would take the benefit as a lump sum on retirement in 10 years' time.What is the present value of the expected future benefit payment (rounded to the nearest dollar)?

Quizplus · Accepted Answer

The present value of the expected future benefit payment can be calculated using the formula for present value: $$PV = \frac{FV}{(1 + r)^n}$$ where $PV$ is the present value, $FV$ is the future value ($400,000), $r$ is the discount rate (7%, or 0.07, since the quality corporate bond rate is typically used for these calculations), and $n$ is the number of periods (10 years). Plugging in the values: $$PV = \frac{400,000}{(1 + 0.07)^{10}} = \frac{400,000}{(1.07)^{10}} \approx \$185,277$$ (rounded to the nearest dollar).

Maestro Superannuation Plan Provides the Following Information Relating to the Period