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Question - Crane Ltd. initiated a one-person pension plan in January 2012 that promises the employee a pension on retirement according to the following formula: pension benefit = 2.9% of final salary per year of service after the plan initiation. The employee began employment with Crane early in 2012 at age 33, and expects to retire at the end of 2038, the year in which he turns 60. His life expectancy at that time is 21 years.
Assume that this employee earned an annual salary of $45,500 when he joined Crane, that his salary was expected to increase at a rate of 2% per year, and that this remains a reasonable assumption to date. Crane considers a discount rate of 8% to be appropriate.
Required -
1- What is the employee's expected final salary?
2- What amount of current service cost should Crane recognize in 2020 relative to this plan? Use PV tables, a financial calculator, or Excel functions in your calculation.
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