L2 :Morning Quiz Q:49

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L2 :Morning Quiz Q:49

Postby mail2arungoel » Mon May 28, 2012 8:04 pm

The solution is more misleading than I can suggest the corrections to;

Pl. put up the correct solution

Hint :they will get only 19 increments (draw a time line) NOT 20 as per the solution proposed.

Each is entitled to 20 times the 1.5% of last pay drawn as pension (NOT 5 Times as computed by the question); because they are entitled to 1.5% of final salary FOR EACH YEAR OF SERVICE i.e 20 (not 5 !!!)

Pl. put up a CORRECT SOLUTION clearly stating the reason for making the assumptions.

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Re: L2 :Morning Quiz Q:49

Postby jaspreet.frm » Wed May 30, 2012 2:30 pm

Hi Arun,

As per my calculation, solution is correct for the question.

First Part:

If you draw the timeline taking 1st january as starting date(as per question), All the persons will turn 60 on 1st january 2032. But, according to company's policy, the person will not retire before 31st dec, 2032. So, total number of years they are working are 21(approx) or you can eaily say its more than 20 years. Therefore, All employees will get 20 increments and not 19.

Second Part:

Here question is what would be PBO at 5 years of service. So, you will multilply annuity with 5 and not with 20 and then calculate its present value.
Same type of example is also given in Schweser. You can refer that as well.

Hope I have cleared your doubt.

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