current service cost

CFA Level II
#1

Thanks!

#2

For the six years leading up to their retirement you need to contribute the PV equivalent of $13,901 so that you can pay their retirement annuity.

At the end of 2014 there are 5 years left to retirement, therefore the PV of the payment due for 2014 = $13901 / (1.075)^5 = $9683

At the end of 2015 there are 4 years left to retirement, therefore the PV of the payment due for 2015 = $13901 / (1.075)^4 = $10409

*You also need to consider the interest on the PBO during 2015. Beg PBO 2015 = $9683 * .075 = $726.23

#3

Thanks for the reply!!! I just realized I never fitured out how to calculate current service cost. This totally makes sense now for this question.

However, since you are also using Kaplan. On page 98 in the account book. The example uses "PV of 15 payments of $2,563.30 beginning in 23 years) to calculate the current service cost. If I use $43,881.09 divided by 24 which is the method mock is using, is NOT equal to the current service cost of 3,736.81.

Can you help explain how does that question calculate the current service cost of 3,736.81?

Thanks!

#4

Thanks for the reply!!! I just realized I never fitured out how to calculate current service cost. This totally makes sense now for this question.

However, since you are also using Kaplan. On page 98 in the account book. The example uses “PV of 15 payments of $2,563.30 beginning in 23 years) to calculate the current service cost. If I use $43,881.09 divided by 24 which is the method mock is using, is NOT equal to the current service cost of 3,736.81.

Can you help explain how does that question calculate the current service cost of 3,736.81?

Thanks!