Question

On December 31, 2015, the expected postretirement benefit obligation was $300 million. The accumulated postretirement benefit obligation was $175 million. Service cost for 2016 was $60 million. The actuary's discount rate was 8%. What was the interest cost for 2016?

A) $14 million
B) $18.8 million
C) $24 million
D) $28.8 million

Answer 1

The interest cost for 2016 is $18.8 million.

Step-by-step explanation:

The interest cost for 2016 can be calculated using the formula: Interest Cost = (Beginning PBO + Ending PBO) / 2 * Discount Rate. In this case, the beginning PBO is $175 million (accumulated postretirement benefit obligation) and the ending PBO is $300 million (expected postretirement benefit obligation). The discount rate is given as 8%. Plugging these values into the formula:

Interest Cost = ($175 million + $300 million) / 2 * 0.08

Interest Cost = $475 million / 2 * 0.08 = $18.8 million

Therefore, the interest cost for 2016 is $18.8 million.