Three employees of the Horizon Distributing Company will receive annual pension payments from the company when they retire. The employees will receive their annual payments for as long as they live. Life expectancy for each employee is 15 years beyond retirement. Their names, the amount of their annual pension payments, and the date they will receive their first payment are shown below:

Required:
1. Compute the present value of the pension obligation to these three employees as of December 31, 2011. Assume an 11% interest rate.
2. The company wants to have enough cash invested at December 31, 2014, to provide for all three employees. To accumulate enough cash, they will make three equal annual contributions to a fund that will earn 11% interest compounded annually. The first contribution will be made on December 31, 2011. Compute the amount of this required annual contribution.

HORIZON DISTRIBUTING COMPANY
Life expectancy beyond retirement		15
Interest rate		11%
Number of equal contributions		3
		Date of
	Annual	First
Employee	Payment	Payment
Tinkers	$ 20,000	12/31/2014
Evers	$ 25,000	12/31/2015
Chance	$ 30,000	12/31/2016

Transcribed Image Text:

EmployeeAnnual PaymentDate of First Payment Tinkers Evers Chance $ 20,000 25,000 12/31/14 12/31/15 12/31/16