- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 11. Employee Compensation: Post-Employment and Share-Based
- Subject 3. Analysis of Pension Plan Disclosures
CFA Practice Question
A higher rate of compensation increase ______ service cost and ______ interest cost.
B. increases, decreases.
C. increases, increases.
A. decreases, increases.
B. increases, decreases.
C. increases, increases.
Correct Answer: C
A higher rate increases both the service cost and interest cost (by increasing the PBO).
User Contributed Comments 2
| User | Comment |
|---|---|
| rodney176 | How does compensation affect the discount rate ? |
| merc5559 | It doesn't. Interest cost= PBO x Discount Rate. Higher rate of compensation leads to higher PBO which leads to higher interest cost. |