Schweser says “The use of a higher discount rate will result in lower present values and, hence, lower PBO. In most cases, both the service costs and the interest cost will decrease, so higher discount rates almost always result in lower pension expense…” I get the service cost decreasing, but wouldn’t interest cost increase? This is on pg 222 of book 2 in the answers
Almost always no, cause the interest is calc’ed on the PBO, so the effect of the decrease in the PBO is greater than the increase in the interest expense from the increase in the discount rate.
^that is right a higher discount rate weights more on pv of pbo than the interest expense