. A firm has a defined benefit pension plan that pays an annual retirement benefit of 1.5% of…

. A firm has a defined benefit pension plan that pays an annual retirement benefit of 1.5% of final salary per year of service. Joe Loyal is 60 years old and has been working for the firm for the last 35 years. His current salary is $40,000 per year.

a. If normal retirement age is 65, the interest rate is 8%, and Joe’s life expectancy is 80, what is the present value of his accrued pension benefit?

b. If Joe wanted to retire now, what would be an actuarially fair annual pension benefit? Assume the first payment would be made one year from now.)