CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

On December 31, 2011, Staymore Inns' accumulated postretirement benefit obligation was $273 million. Retiree benefits of $27 million were paid at the end of 2011. Service cost for 2011 is $63 million.

Estimates and assumptions regarding future health care costs were revised in 2011, causing the actuary to revise downward the estimate of the APBO by $6 million. The actuary's discount rate is 8%. There were no unrecognized postretirement benefit costs at the end of 2011.

What was the accumulated postretirement benefit obligation at January 1, 2011?

A. $200 million.
B. $210 million.
C. $225 million.
Correct Answer: C

Let x equal the beginning APBO. $x + $63 (service cost) + $ (8% x x) (interest expense) - $27 (benefits paid) - $6 (estimation revision) = $273 (ending APBO). Solving for x gives $225. [in millions]

User Contributed Comments 3

User Comment
jkc2007 why do we subtract the actuary change of -$6mil? i thought any loss should be added to the equation?
thekapila its not loss its a gain thats why u reduce it from beginning balance.
kodali negative expense, since its revised downward
You need to log in first to add your comment.