Discount rate for these computations

Reference no: EM139390

Q. For the present employees, there is 30 million dollars in Pension Trust. These employees will retire in the weighted average of ten years, also then begin to gather a total of $8.3 Million each year for the weighted average expectancy of twenty years. Firm claims which using a discount rate of 8.00%, they are 80% funded, but with future profitability, they will be able to pay in more money.

So first, find out present value (in 10 years) of what they will require to make 20 years of payments at $8.3 Million each year at their discount rate. Then, discount that figures at their discount rate to Find out today's current value required to compound to that in ten years. How does that compare to $30 Million that is really there.

Next, what do you believe is the suitable rate other than 8.00% to utilize as the discount rate for these computations? At that rate, what level of underfunding presently exists, if at all? Why is your selected rate better than 8.00% that the firm used?

Reference no: EM139390

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