Question

Imprudential, Inc. has an unfunded pension liability of $627 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. The relevant discount rate is 7.38 percent. What is the present value of this liability?

Answer 1

$140,564,661

Step-by-step explanation:

The formula and the computation of the present value of this liability is shown below:

As we know that

Future value = Present value × (1 + interest rate)^number of years

where,

Future value = $627,000,000

Interest rate = 7.38%

And, the number of years = 21

So, the present value is

$627,000,000 = Present value × (1 + 7.38%)^21

So, the present value is

= $627,000,000 ÷ 4.4606

= $140,564,661