Real World Case 6–6
Requirement 1
The maturity value (face amount) can be determined by dividing the present
value by the present value of $1 factor for 8 semiannual periods (end of 2015 –
beginning of 2020) at the semiannual rate of 1.5%:
Present value of $1: n = 8, i = 1.5% (from Table 2)
So, $154 million is the maturity value (face amount) to be paid in 4 years. Of
semiannual periods.
Requirement 2
Using a 1.5% effective semiannual rate and 40 periods:
Real World Case 6–7
Requirement 1
The effective interest rate can be determined by solving for the unknown
present value of an ordinary annuity of $1 factor for ten periods:
Present value of an ordinary annuity $1: n = 10, i = ? (from Table 4, i = approximately 6.5%)
In row 10 of Table 4, the value of 7.02 is in the 7% column and 7.36 is in the
Requirement 2
The effective interest rate can be determined by solving for the unknown
present value of an annuity due $1 factor for 10 periods:
Present value of an annuity due of $1: n = 10, i = ? (from Table 6, i = approximately 8%)
In row 10 of Table 6, the value of 7.24 is in the 8% column. So, 8% is the
Target Case
Requirement 1
Note 22: “Leases” reports the following:
Future Minimum Lease Payments
(millions)
Operating Capital
Leases Leases
2016 $ 186 $130
2017 183 73
The note indicates that the present value of lease payments for capital lease
(Target Case concluded)
Requirement 2
A deferred annuity exists when the first cash flow occurs more than one period
after the date the agreement begins. We have a 16-year deferred annuity beginning
in 5 years. We also have five payments scheduled over the next four years.
The present value of the first five future payments can be found using PV factors
from Table 2:
2016 0.94340* x $186 = $ 175
After 2020:
* Present value of $1: n = 1,2,3,4,5 i = 6% (from Table 2)
** Present value of an ordinary annuity $1: n = 16 i = 6% (from Table 4)
* Present value of $1: n = 5 i = 6% (from Table 2)
If Target had used the new lease accounting guidance in its 2016 financial
million.
Air France/KLM Case
Requirement 1
Note 31.2 Description of the actuarial assumptions and related
sensitivities (in part)
Discount rates used to determine the actuarial present value of the projected
benefit obligations.
The discount rates for the different geographical areas are thus determined based
on the duration of each plan, taking into account the average trend in interest rates
on high quality bonds, observed on the main available indices. In some countries,
where the market regarding this type of bond is not broad enough, the discount rate
is determined with reference to government bonds. Most of the Group’s benefit
obligations are located in the Euro zone, where the discount rates used are as
follows:
As of December 31 2015 2014
Requirement 2
Note 31.2 Description of the actuarial assumptions and related
sensitivities (in part)
Sensitivity to changes in the discount rate (in € millions)
for the year ended for the year ended
December 31, 2015 December 31,
2014
