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Imprudential, Inc., has an unfunded pension liability of $414 million that must be paid in 19 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 7.9 percent, what is the present value of this liability?
Here the Future value of the liability that has to be paid over a period of 19 yrs is. :- $414
time period is :- 19 years
interest rate (i) :-7.9% or 0.079
Now the formula for calculating the present value from future value is :-
PV = FV / (1+i)t
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