A pension plan is obligated to make disbursements of $2.7 million, $3.7 million,
ID: 2720557 • Letter: A
Question
A pension plan is obligated to make disbursements of $2.7 million, $3.7 million, and $2.7 million at the end of each of the next three years, respectively. Find the duration of the plan's obligations if the interest rate is 10% annually. (Do not round intermediate calculations. Round your answer to 4 decimal places.)
A pension plan is obligated to make disbursements of $2.7 million, $3.7 million, and $2.7 million at the end of each of the next three years, respectively. Find the duration of the plan's obligations if the interest rate is 10% annually. (Do not round intermediate calculations. Round your answer to 4 decimal places.)
Explanation / Answer
Years
PMT
PV of PMT
Weight of PMT
Years x Weight of PMT
1
$2,700,000.00
$2,454,545.45
0.3255
0.325495666
2
$3,700,000.00
$3,057,851.24
0.4055
0.810999303
3
$2,700,000.00
$2,028,549.96
0.2690
0.807014048
$7,540,946.66
1.0000
1.943509017
Duration = 1.9435 Years
PMT = Periodic Payment
PV of PMT = PMT / (1+discount rate)n, Where discount rate = 10%(annual interest) and n = number of years from now
Weight of PMT = PV of PMT/ Sum of all PV of PMT
Years
PMT
PV of PMT
Weight of PMT
Years x Weight of PMT
1
$2,700,000.00
$2,454,545.45
0.3255
0.325495666
2
$3,700,000.00
$3,057,851.24
0.4055
0.810999303
3
$2,700,000.00
$2,028,549.96
0.2690
0.807014048
$7,540,946.66
1.0000
1.943509017
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.