Question

Three employees of the Horizon Distributing Company will receive annual pension payments from thecompany when they retire. The employees will receive their annual payments for as long as they live. Lifeexpectancy for each employee is 15 years beyond retirement. Their names, the amount of their annualpension payments, and the date they will receive their first payment are shown below:

Employee	Annual Payment	Date of First Payment
Tinkers	$20,000	12/31/21
Evers	25,000	12/31/22
Chance	30,000	12/31/23

Required:

1. Compute the present value of the pension obligation to these three employees as of December 31,2016. Assume an 11% interest rate.

2. The company wants to have enough cash invested at December 31, 2019, to provide for all threeemployees. To accumulate enough cash, they will make three equal annual contributions to a fund thatwill earn 11% interest compounded annually. The first contribution will be made on December 31, 2016.Compute the amount of this required annual contribution.

Use the following excel sheet to complete this problem.

BA 363 Pension P6-14 Na Deferred Annuity Step 2 Step 1 FORMULA 12/31 18 Formula: x 1000) n-15 19 21 23 24 26 27 31 Annual. Pmt 20000 Tinkers Evers Chance 30000 Total Pension Obglig 12/31/18 a. Amount that will fund Pension as of 12131/2021 Payment that will grow to amount needed as of 12131121