Question

NuEditions Book Company uses a final average salary formula to calculate an employee’s pension benefits. The amount used in the calculations is the salary average of the final 3 years of employment. The retiree will receive an annual benefit that is equivalent to 1.75% of the final average for each year of employment. Mike and Rob are both retiring at the end of this year. Calculate their annual retirement pension given the following information:

Mike: Years of employment: 25;

Final three annual salaries: $84,780, $84,900, $85,000

Kristy: Years of employment: 27;

Final three annual salaries: $71,600, $73,400, $78,000

Answer 1

Mike : $37140.83

Kristy : $35,122.50

Step-by-step explanation:

Given the data:

Mike:

Years of employment: 25;

Final three annual salaries: $84,780, $84,900, $85,000

Average :

$(84,780 + 84,900 + 85,000) /3

$254680 ÷ 3

= $84893.333

1.75% of average

0.0175 * $84893.333

= $1485.6333

$1485.6333 * number of years

$1485.6333 * 25

= $37140.833

Kristy:

Years of employment: 27;

Final three annual salaries: $71,600, $73,400, $78,000

Average = $(71,600 + 73,400 + 78,000) / 3

Average = $223,000 / 3

= $74,333.333

1.75% * $74333.333

= $1300.8333

$1300.8333 * 27

= $35,122.5