I need show work 9.) Calculate the interest cost associated with the BPO for 201
ID: 2394821 • Letter: I
Question
I need show work
9.)
Calculate the interest cost associated with the BPO for 2017 using the following information.
FACTS:
The company has a defined benefit plan
Harry's salary at the end of 2016
$ 148,500
Retirement expected after
45
years of service
Retirement period is expected to be
20
years
Interest Rate
5.0%
Benefits are calculated as a formula as the product of:
Service already provided
20
.
Percentage
2.0%
Final year's salary is projected to be
$ 175,000
9.)
Calculate the interest cost associated with the BPO for 2017 using the following information.
FACTS:
The company has a defined benefit plan
Harry's salary at the end of 2016
$ 148,500
Retirement expected after
45
years of service
Retirement period is expected to be
20
years
Interest Rate
5.0%
Benefits are calculated as a formula as the product of:
Service already provided
20
.
Percentage
2.0%
Final year's salary is projected to be
$ 175,000
Explanation / Answer
Particulars
Amount ($)
Harry's salary at the end of 2016
148500
Rate of interest
5%
Interest costs (148500 x 5%)
7425
The question has asked use to calculate the interest cost of BPO for 2017. Since the salary of Harry at the end of 2016 is $148500 and the rate of interest is 5% per annum. It is clear that the interests cost of BPO for 2017 is the opportunity costs of Harry’s salary that could have been earned by the company from the salary amount. Thus, the interest cost of BPO for 2017 has been calculated as following:
(148500 x 5%) = $7425.
Particulars
Amount ($)
Harry's salary at the end of 2016
148500
Rate of interest
5%
Interest costs (148500 x 5%)
7425