The company wants to have enough cash invested at December 31, 2016, to provide for all three employees. To accumulate enough cash, they will make three equal annual contributions to a fund that will earn 11% interest compounded annually. The first contribution will be made on December 31, 2013. Compute the amount of this required annual contribution.
| Employee |
Annual Payment |
Date of First Payment |
| Tinkers |
$ |
20,000 |
|
12/31/16 |
| Evers |
|
25,000 |
|
12/31/17 |
| Chance |
|
30,000 |
|
12/31/18 |
|
| 1. |
Compute the present value of the pension obligation to these three employees as of December 31, 2013. Assume an 11% interest rate.
|
|
|
| 2. |
The company wants to have enough cash invested at December 31, 2016, to provide for all three employees. To accumulate enough cash, they will make three equal annual contributions to a fund that will earn 11% interest compounded annually. The first contribution will be made on December 31, 2013. Compute the amount of this required annual contribution.
|
|
|
Amount of annual contribution.
|
|