Annual unit credit

CFA Level II
#1

what the bloody **** is Annual unit credit, where was this on book, someone pls help me, wtf

#2

It’s how you determine the amount of benefits an employee earns each year, and represents periodic current service costs to the plan. Yes it’s in the curriculum.

#3

Hi Jaywill,

What you said made sense. Am just curious for the example in Kaplan book page 98 of the account book. They used “PV of 15 payments of $2,563.30 beginning in 23 years” to calculate the Currecnt service cost. I just cannot use the same method in the mock for the Kaplan exaple with the “present value divided by 23 years” to find the same value. Can you help explain why the two approches differ?

Thank you!

#4

Hi, I don’t have the Kaplan study guide so I can’t see the question you’re referring to, but assuming $2,563.30 are the annual payments an employee would receive in retirement, you need to find the PV of those payments using your calculator and the given discount rate. N = 15, I/Y = (?), PMT = $2,563.30, CPT PV. Then you take that value and divide by the number of years until retirement (which seems to be 23 in your question).

This result is your Annual Unit Credit

To compute the Current Service Cost for the year where there is 23 years to retirement, you discount the annual unit credit to the END of that year. So, the $Annual Unit Credit / (1 + r )^22 would be your service cost for that year.

#5

I see now!!! Kaplan should have mentioned this in the book so that I didnt need to spend a over a couple of hours on this. Maybe they think this is not important… But this is defitniely great to know.

Thank you for your help!

#6

You bet. Best of luck on the exam.

#7

Has anyone solved this for annual credit unit? I need help.

#8

Final year annual salary = 128165

Annual pension payment = 128165*.02*25 = 64082

PV of 64082 for 15 years (no. Of pension payments) at 8% = -548512

Annual credit unit = 548512/25 = 21940

Since I know this is wrong, what exactly am I missing here?

#9

shouldn’t it be 548512/15 ?? since the # of pension payments is 15 – not 25?

#10

But the annual pension payment is 2563.30 in schweser solution, so even 64082 is wrong

#11

you should realize that folks trying to help you may NOT have access to Schweser ?

#12

I’m sorry for that. But I have faced difficulties in posting screenshots here and do not know any other way of putting it across. It’s okay. Thanks for your time.

#13

your number stated above = 128165*.02 = 2563.30.

#14

Hi, what would the current service cost be using annual unit credit if i=8%?

PV of the annuity would equal 21940.55. Then you say divide this by yrs til retirement so that would equal 21940.55/24yrs = 914.19

The way kaplan does it is 21940.55/(1+.08)^24 = 3460.01 being your Current Service Cost for year1.

i’m trying to see how to compare the Current Service Cost in the kaplan book because they don’t use the annual unit credit calculation.

thanks!