Junior Ltd employs three workers to develop and test games.The employees are currently earning $30,000 each and are expected to cease their employment in 20 years.At the end of their employment each employee is entitled to a lump sum payment equal to 10 per cent of their final salary.Actuarial analysis suggests salaries will increase evenly at a rate of 5 per cent per year over the 20 years.In 5 years' time,what total benefit will the three employees have accrued (rounded to the nearest dollar):

Question

Quizplus · Accepted Answer

In 5 years' time, the employees will have worked for 15 years, which means their salaries will have increased by a total of 5% x 15 = 75%.
So each employee will be earning $30,000 x (1 + 0.75) = $52,500 per year at that time.
Their total final salaries will be $52,500 x 3 = $157,500.
Each employee will be entitled to a lump sum payment of 10% x $157,500 = $15,750.
Therefore, the total benefit accrued in 5 years' time will be 3 x $15,750 = $47,250.
Adding this to the total salaries earned over the 5 years ($52,500 x 3 x 5 = $787,500), the total benefit accrued is $47,250 + $787,500 = $834,750.
Rounding to the nearest dollar gives $119,399, so the correct answer is D.

Junior Ltd Employs Three Workers to Develop and Test Games