FRM Part I · FRM Exam Part I · Insurance Companies and Pension Plans
A DB plan pays an annual pension equal to 1.5% of final salary for each year of service. An employee retires after 30 years of service with a final salary of USD 80,000. What is the annual pension?
The pension is USD 36,000 per year. Thirty years at 1.5% per year gives 45% of final salary, and 45% of USD 80,000 equals USD 36,000. Other figures come from using the wrong accrual rate or misreading the percentage.
- AUSD 24,000
- BUSD 36,000Correct
- CUSD 1,200
- DUSD 45,000
Explanation
Accrual is 1.5% x 30 = 45% of final salary. 0.45 x 80,000 = USD 36,000. USD 24,000 would result from using 1% per year; USD 45,000 mistakes the percentage for a dollar figure.
Did you get it right without looking?
One question tells you little. A timed set on Insurance Companies and Pension Plans shows your real accuracy, how long you take and where you lose marks.
More Insurance Companies and Pension Plans questions
- Which feature best explains why life insurers generally face greater interest-rate and longevity-related balance-sheet risk than property-ca…
- A mortality table shows 90,000 persons alive at age 40 and 89,100 alive at age 41. What is the one-year probability that a person aged 40 di…
- A pension plan's liabilities are discounted at the rate of high-quality corporate bonds. If that discount rate falls by 50 basis points and …
- A corporation sponsors a defined benefit (DB) pension plan. Which statement best describes who bears the investment risk if plan assets earn…
- A property-casualty insurer reports the following for a year: premiums earned of $200 million, losses and loss adjustment expenses incurred …
- Which feature is characteristic of a DC plan rather than a DB plan?