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Basic Question 1 of 2
On December 31, 2010, the expected postretirement benefit obligation was $300 million. The accumulated postretirement benefit obligation was $175 million. Service cost for 2011 was $60 million. The actuary's discount rate is 8%. What was the interest cost for 2011?
B. $18.8 million.
C. $24.0 million.
A. $14.0 million.
B. $18.8 million.
C. $24.0 million.
User Contributed Comments 6
| User | Comment |
|---|---|
| george2006 | The interest cost for pension plan is based on begining balance of the PBO, not ABO. Is this correct that other post-retirement benefit plan interest cost is based on ABO, not expected BO? |
| ssradja | i thought the interest cost = PBO * discount rate. here the formula is ABO * discount rate. anybody? |
| creativemny | This question is about the Post-retirement Benefit Obligation which is different then Pension Obligation. APBO is the only measure (there is no PPBO) because companies rarely fund these. |
| ngeorge | yes, this question is for a post-retirement medical plan--not a pension plan. |
| vi2009 | good one! |
| quanttrader | interest cost (post retirement benefit obligation) = apbo * r |
I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
Learning Outcome Statements
explain and calculate how adjusting for items of pension and other post-employment benefits that are reported in the notes to the financial statements affects financial statements and ratios;
interpret pension plan note disclosures including cash flow related information;
CFA® 2025 Level II Curriculum, Volume 2, Module 11.