Question

Present value. The State of Confusion wants to change the current retirement policy for state employees. To do​ so, however, the state must pay the current pension fund members the present value of their promised future payments. There are 240 comma 000240,000 current employees in the state pension fund. The average employee is 2222 years away from​ retirement, and the average promised future retirement benefit is ​$400 comma 000400,000 per employee. If the state has a discount rate of 55​% on all its​ funds, how much money will the state have to pay to the employees before it can start a new pension​ plan?

Answer 1

To find the present value of the promised future retirement payments, use the formula for present value and substitute the given values. The state will have to pay approximately $36,573,892.09 before it can start a new pension plan.

Step-by-step explanation:

To find the present value of the promised future retirement payments, we can use the formula for present value. The formula is:

Present Value = Future Value / (1 + Discount Rate)Number of Periods

Given that there are 240,000 current employees, each average employee is 22 years away from retirement, and the average promised future retirement benefit is $400,000, we can substitute these values into the formula:

Present Value = $400,000 / (1 + 0.55)22

Calculating this using a calculator or spreadsheet software, the state will have to pay approximately $36,573,892.09 before it can start a new pension plan.

Answer 2

The present value of the pension fudn is 32,817,587,624.32 dollars

the state must first pay this amount before start a new pension plan

Step-by-step explanation:

Employees 240,000

The average employee is 22 years away fro mretirement.

and the average retirement benefit is 400,000

discount rate: 5%

Total fund obligation:

240,000 employees x 400,000 dollars each = 96.000.000.000

Then, we discount at 5% for 22 years:

`(Maturity)/((1 + rate)^(time) ) = PV`

Maturity 96,000,000,000.00

time 22 year

rate 5% = 0.05

`(96000000000)/((1 + 0.05)^(22) ) = PV`

PV 32,817,587,624.32