An employee has just joined SONY Corporation and a pension plan is set up in her

Question

An employee has just joined SONY Corporation and a pension plan is set up in her name under which the company will contribute $5,000 per year and the employee herself will contribute $1,000 per year. How much will this year’s contributed funds be worth in 10 years if the pension plan pledges a 7 percent annual return on each dollar saved? Suppose the employee plans to retire in 10 years. How much will be available in total at retirement if the company and employee contribute the amounts noted above each year for the next 10 years and this employee owns (is vested with) the full amount of savings contributed to the pension plan? If the pension promises an annual annuity rate of 6 percent given this employee’s life expectancy, what annual retirement income can she expect?

Value of funds contributed today at retirement
Total funds available at retirement
Expected annual retirement income

Explanation / Answer

1)Value of funds contributed today at retirement ( if interest 6%)
PV = Fv / (1+r)^n = $79086 / ( 1.06)^10 =$44161.21
2.Total funds available at retirement

How much will this year’s contributed funds be worth in 10 years if the pension plan pledges a 7 percent annual return on each dollar saved 1)Value of funds contributed today at retirement ( if interest 6%)
PV = Fv / (1+r)^n = $79086 / ( 1.06)^10 =$44161.21 Total investment = $5000 +1000 = $6000 Interest = 7% n = 10 Fv = 6000*(13.816) $82896 If the pension promises an annual annuity rate of 6 percent given this employee’s life expectancy, what annual retirement income can she expect?

Fv =6000*(13.181) =$79086 Expected annual retirement income : if 7% pledge gives: Fv = 6000*(13.816) $82896 if pension gives 6% Fv =6000*(13.181) =$79086. Fv = 6000*(13.816) $82896 if pension gives 6% Fv =6000*(13.181) =$79086. =$79086.

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