If the firm can earn 8% on the money it must invest annually to fund the pension ,how much will the firm have to invest annually to have the funds necessary to purchase the annuities?

Erin Oreilly has recently been employed by Human Resources

To calculate the amount the company must invest each year to buy annuities we first need to determine how much money is needed to invest. The projected payments can be multiplied by an inflation factor or investment return over time.

If, for example, the company expects to spend $100,000 per year over the next 10years and anticipates earning 8% from their investment, then they would need to put up an initial amount of $1167739 (100,00 x 1.0810). In order to ensure they are able to access the money when required, it is important that this sum be contributed annually.