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.
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?
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.
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.
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.