You are the Chief Financial Officer at a pension fund. You are trying to determine how...
You are the Chief Financial Officer at a pension fund. You are trying to determine how much you need in the fund to be able to cover your company’s pension obligation. You estimate that you will have to pay out $20 million per year, each year (starting next year) for the rest of time.
How much must you have in the pension fund to just cover your obligation if you earn 5% APR compounded annually on your investment?
A) $400 million
B) $408 million
C) $20 million
D) $100 million
Homework Answers
Investment Required = Yearly Payment / Interest Rate
Investment Required = $20 Million / 5%
Investment Required = $400 Million Option A
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