Asked by Kennedy Bulman on May 12, 2024
Verified
The interest rate that may be used to compute the interest cost component of pension expense is equal to the
A) company's expected long-term rate of return on plan assets
B) rate of return on high quality fixed-income investments
C) rate of interest at which the pension benefits could be effectively settled
D) rate of return on high quality fixed-income investments or rate of interest at which the pension benefits could be effectively settled
Interest Cost Component
The portion of pension expense that reflects the increase in pension benefits liability due to the passage of time, calculated based on actuarial assumptions.
- Understand the importance of actuarial assumptions and their impact on pension expenses and duties.
Verified Answer
CZ
Claudia ZelayaMay 18, 2024
Final Answer :
D
Explanation :
The interest rate used to compute the interest cost component of pension expense can either be the rate of return on high-quality fixed-income investments or the rate of interest at which the pension benefits could be effectively settled. This provides flexibility in determining the cost based on prevailing economic conditions and the specific circumstances of the pension plan.
Learning Objectives
- Understand the importance of actuarial assumptions and their impact on pension expenses and duties.
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