Present value. The State of Confusion wants to change the current retirement policy for state employees. To do so, however, the state must pay the current pension fund members the present value of their promised future payments. There are 240 comma 000240,000 current employees in the state pension fund. The average employee is 2222 years away from retirement, and the average promised future retirement benefit is $400 comma 000400,000 per employee. If the state has a discount rate of 55% on all its funds, how much money will the state have to pay to the employees before it can start a new pension plan?

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TomShelby TomShelby · Answer 1 · 2019-10-24T00:04:33+02:00

Answer:

The present value of the pension fudn is 32,817,587,624.32 dollars

the state must first pay this amount before start a new pension plan

Explanation:

Employees 240,000

The average employee is 22 years away fro mretirement.

and the average retirement benefit is 400,000

discount rate: 5%

Total fund obligation:

240,000 employees x 400,000 dollars each = 96.000.000.000

Then, we discount at 5% for 22 years:

[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]

Maturity 96,000,000,000.00

time 22 year

rate 5% = 0.05

[tex]\frac{96000000000}{(1 + 0.05)^{22} } = PV[/tex]

PV 32,817,587,624.32