Question

A company has a pension liability of $440,000,000 that it must pay in 29 in years. If it can earn an annual interest rate of 4%, how much must it deposit today to fund this liability?

a. $141,086,622.46.
b. $122,766,607.13.
c. $47,049,210.09.
d. $135,660,213.91.
e. $112,973,212.81.

Answer 1

a. $141,086,622.46.

Step-by-step explanation:

Calculation for how much must it deposit today

Using this formula

Present Value = Future Value / [ ( 1 + r) n]

Where,

Future Value = 440,000,000

r = rate of Interest= 4%

n = Number of years = 29

Let plug in the formula

Present Value = 440,000,000 / [ ( 1 + 0.04)29]

Present Value= 440,000,000 / 3.1186514519

Present Value= $141,086,622.46

Therefore the amount it must deposit today to fund this liability will be $141,086,622.46