A pension plan is being set up for a company's employees. The plan will pay a monthly benefit of $3,000 to each retiree for the rest of their life. The pension plan will invest its assets in a portfolio of bonds with a yield to maturity of 4% per annum and a duration of 10 years. The actuary estimates that

A pension plan is being set up for a company's employees. The plan will pay a monthly benefit of $3,000 to each retiree for the rest of their life. The pension plan will invest its assets in a portfolio of bonds with a yield to maturity of 4% per annum and a duration of 10 years. The actuary estimates that the average lifespan of the retirees is 20 years. The pension plan wants to ensure that it has sufficient assets to cover the expected future liability associated with the pension plan. What is the minimum monthly contribution per employee the company must make to ensure that the pension plan can meet the expected future liability? Show all calculations.

Expert Answer

The detailed answer for the above question is provided below: Given data: Monthly benefit payable to each retiree = $3,000 Yield to maturity of bond portfolio View the full answer