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Basic Question 0 of 10
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 |
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Edward Liu
Learning Outcome Statements
calculate and interpret alternative price multiples and dividend yield;
calculate and interpret underlying earnings, explain methods of normalizing earnings per share (EPS), and calculate normalized EPS;
explain and justify the use of earnings yield (E/P);
describe fundamental factors that influence alternative price multiples and dividend yield;
calculate and interpret the justified price-to-earnings ratio (P/E), price-to-book ratio (P/B), and price-to-sales ratio (P/S) for a stock, based on forecasted fundamentals;
calculate and interpret a predicted P/E, given a cross-sectional regression on fundamentals, and explain limitations to the cross-sectional regression methodology;
evaluate a stock by the method of comparables and explain the importance of fundamentals in using the method of comparables;
calculate and interpret the P/E-to-growth ratio (PEG) and explain its use in relative valuation;
calculate and explain the use of price multiples in determining terminal value in a multistage discounted cash flow (DCF) model;
explain alternative definitions of cash flow used in price and enterprise value (EV) multiples and describe limitations of each definition;
calculate and interpret EV multiples and evaluate the use of EV/EBITDA;
CFA® 2025 Level II Curriculum, Volume 4, Module 23.