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Imprudential, Inc., has an unfunded pension liability of $568 million that must be paid in 15 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 6.1 percent, what is the present value of this liability?

Answer :

Answer:

$233,677,865.61

Explanation:

The computation of the present value of this liability is given below:

As we know that

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

So,

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

                       = $568,000,000 ÷ (1 + 6.1%)^15

                       = $568,000,000 ÷ 2.430696628

                       = $233,677,865.61

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