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frutty [35]
3 years ago
11

Imprudential, Inc., has an unfunded pension liability of $573 million that must be paid in 20 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 6.6 percent, what is the present value of this liability?
Business
1 answer:
NeTakaya3 years ago
4 0

Answer:

$159.59  million

Explanation:

The present value of the liability is the future value of the obligation which in this case is $573 million discounted at the 6.6% appropriate discount chosen by the analyst as shown below:

PV=FV/(1+r)^n

PV=the present value of the obligation=the unknown

FV=$573 million

r=discount rate=6.6%

n=number of years before the liability becomes due=20

PV=$573 million/(1+6.6%)^20

PV=$573 million/1.066^20

PV=$573 million/3.590410405

PV=$159.59  million

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