Tom, a government employee, has a defined benefit pension.He has ...

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Tom, a government employee, has a defined benefit pension.He has worked for his employer for 35 years before retiring at age 65.His final salary was 85,000.
 
  Calculate how much of his final preretirement income a standard defined benefit pension plan would replace.

Question 2

Refer to Table 2-7. What is Mickey's opportunity cost of making an umbrella?
 
  A) 1/5 of a hat B) 5 hats C) 10 hats D) 50 hats

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Answer to Question 1

Using the formula given in the chapter, Tom's pension would equal:
0.02  35  85,000 = 59,500.
This would replace 59,500/85,000 = 0.70 or 70 percent of his preretirement income.
A-head: INVESTMENT ACCOUNTS
Concept: Retirement savings plans

Answer to Question 2

C

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TYSM

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