A company has just hired Mr. Jones, who is age 25 and is expected to retire at a

Question

A company has just hired Mr. Jones, who is age 25 and is expected to retire at age 60. Mr. Jones' current salary is $30,000 per year, but his wages are expected to increase by 5 percent annually over the next 35 years. The company has a defined benefit pension plan in which workers receive 2 percent of their final year's wages for each year of employment. Assume a world of certainty. Further, assume that all payments occur at year-end. What is Mr. Jones' expected annual retirement benefit, rounded to the nearest thousands of dollars?

Choices are a) $35,000; b) $57,000; c) $89,000; d) $116,000, e) $132,000

Please show how you arrived at your answer.

Explanation / Answer

Final year’s salary = $30,000(1.05)35 = $165,480.46.
Salary multiplier = 35(2%) = 70% = 0.70
Pension benefit = 0.70($165,480.46) = $115,836.32.

(C) $116,000

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.