IAS 19

Q No. 1: An employee is 40 years old and has been working for the firm for 15 years. If normal retirement age is 65, the interest rate is 8%, and the employee’s life expectancy is 80, what is the present value of the accrued pension benefit?

Q No. 2: An employee is 45 years old. Her salary is $40,000 per year, and she has $100,000 accumulated in her in her self-directed defined contribution pension plan. Each year she contribution 5% of her salary to the plan, and her employer matches it with another 5%. She plans to retire at age 65. The plan offers a choice of two funds: a guaranteed return fund that pays a risk-free real interest rate of 3% per year and a stock index fund that has an expected real rate of return of 6% per year and a standard deviation of 20%. Her current asset mix in the plan is $50,000 in the guarantee fund and $50,000 in the stock index fund. She plans to reinvest all investment earnings in each fund in that same fund and to allocate her annual contribution equally between the two funds. If her salary grows at the same rate as the cost of living, how much can she expect to have at retirement? How much can she be sure of having?