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 is 8%. what was the interest cost for 2016?

a) $14.0 million
b) $18.8 million
c) $24.0 million
d) $28.8 million

Answer 1

The interest cost for 2016 is calculated by multiplying the expected postretirement benefit obligation of $300 million by the actuary's discount rate of 8%, yielding a cost of $24 million. Therefore, the correct option is C.

Step-by-step explanation:

The interest cost for 2016 can be calculated using the expected postretirement benefit obligation at the beginning of 2016, which is $300 million, and the actuary's discount rate of 8%. The interest cost is the product of the beginning obligation and the discount rate:

Interest Cost = Beginning Obligation × Discount Rate

Interest Cost = $300 million × 0.08

Interest Cost = $24 million

Therefore, the correct answer for the interest cost for 2016 is c) $24.0 million.