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Imprudential, Inc., has an unfunded pension liability of $750 million that must be paid in 10...

Imprudential, Inc., has an unfunded pension liability of $750 million that must be paid in 10 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 6 percent, what is the present value of this liability?

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Expert Solution

Here Future value = $ 750 million

Discount rate = r = 6%

n = no of year = 10

Present value = Future value/(1+r)^n

Present value = 750 million / (1+6%)^10

= 750 million / (1+0.06)^10

= 750 million / (1.06)^10

= 750 million / 1.7908

= $ 418.7961 million

Thus present value of the liability = $ 418.80 million

jeff jeffy answered 2 years ago
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