Question

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 220,000 current employees in the state pension fund. The average employee is 20 years away from​ retirement, and the average promised future retirement benefit is ​$380,000 per employee. If the state has a discount rate of 5.5​% on all its​ funds, how much money will the state have to pay to the employees before it can start a new pension​ plan?

Answer 1

Answer:

$28,652,141,334

Explanation:

For the money to be paid first determine the present value which is shown below:

Present value = Future value × 1 ÷ (1 + rate)^n

= $380,000 × 1 ÷ (1 + 0.055)^20

= $130,237.0061

Now the money i.e. to be paid is

=  $130,237.0061  × 220,000 current employees

= $28,652,141,334

Hence, the above is the answer and the same is to be considered