Question

Imprudential, Incorporated, has an unfunded pension liability of $850 million that must

be paid in 21 years. To assess the value of the firm's stock, financial analysts want to
discount this liability back to the present. If the relevant discount rate is 9.5 percent,
what is the present value of this liability?

Answer 1

`\begin{equation*} 126,392,825.63 \end{equation*}`

Step-by-step explanation

The pension liability is $850 million.

Time period is; 21years.

The present value of the future payment is;

`PV=(FV)/((1+r))`

Substituting the values;

`\begin{gathered} PV=(FV)/((1+r)^t) \\ =(850)/((1+9.5\%)^(21)) \\ =(850)/((1+0.095)^(21)) \\ =(850)/(6.725065254) \\ =126,392,825.63 \end{gathered}`

The Present Value is $126,392,825.63