Chapter 5, Problem 5.14P

(1)

Present Value:

The value of today’s amount to be paid or received in the future at a compound interest rate is called as present value. The following formula is used to calculate the present value of an amount:

$\text{Present value of an amount = }\frac{\text{Future value}}{{\left(\text{1 + interest rate}\right)}^{\text{number}\text{of}\text{periods}}}$

Future Value: The future value is value of present amount compounded at an interest rate until a particular future date. The future value of an amount is calculated by using the following formula:

$\text{Future value of an amount = Present value}\times {\left(\text{1+ Interest rate}\right)}^{\text{Number}\text{of}\text{periods}}$

To determine

The present value of the pension obligation to three employees as of December 31, 2018.

(2)

To determine

To compute: The annual contribution.