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JUne 2011
Bonus scheme for employess at 1 may 2010 .under the schme employees receive cumulative bonus on the completion of 5 yrs.The bonus is 2% of the total annual salary.The total salary of the yr to 30 april 2011 was 40 million and a discount rate of 8%.Additionally at 30 april2011 it is assumed that all employess will receive the bonus and that salaries will rise by 5%.What does the printed solution say? Are you simply testing me or just too lazy to understand the printed solution?
Look at the solution and, if you still don’t understand, be specific about the part that you don’t follow
neither i m testing you nor i m lazy .i tired to understand from the solution but dint get.
It says The benefit allocated to each year will be this figure divided by 5 yrs.That is $ 884000 per year.The current service cost is the PV of this amount at 30 april2011.That is 884000 divided by 1.08 for four years that is $ .065m
I m nt geting . where the figure of $884000 comes from and y wd be divided by 1.08Ok, try this.
year to May 11 salary is 40,000,000
year to May 12 salary is 42,000,000 (increase of 5% on 40,000,000)
year to May 13 salary is 44,100,000 (increase of 5% on 42,000,000)
year to May 14 salary is 46,305,000 (increase of 5% on 44,100,000)
year to May 15 salary is 48,620,250 (increase of 5% on 46,305,000)Total salary over 5 years is 221,025,250
2% x 221,025,250 is 4,420,505
4,420,505 / 5 years = 884,101
That’s the amount earned each year giving an amount payable of 4,420,505 in 5 years’ time
and 884,101 discounted at the rate of 8% for 4 years (we’re already at the end of the first of the five years) is 649,841
We divide by 1.08 to take account of the time value of money. If we invested 649,841 today at the interest rate of 8% compound, then after 4 years we would have 884,101. So an amount of 884,101 4 years into the future has a today value of 649,841 if the interest rate is 8%
OK now?
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