CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

For its year-end 2011 statements, Alex Company increased the pension discount rate from 8.5% to 9.5% and the assumed rate of compensation from 4% to 5%. The effect of these changes is to
A. Increase the difference between the ABO and the PBO.
B. Increase the service cost element of pension costs in 2011.
C. Decrease the deferred experience gains or increase the deferred experience losses.
Explanation: The effect of these changes increases the difference between the ABO and the PBO.

User Contributed Comments 5

User Comment
HenryQ ABO is not impacted, but PBO changes.
treakj Discount rate affects both, compensation only PBO.
dblueroom agree with treakj, but the difference in compensation is large btw ABO and PBO in this case.
yxten1 But why is B wrong?
tim2 B is wrong because increasing the discount rate reduces not increases service cost (see reading 22 sec 4)
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