10. Imprudential Inc. has a unfunded pension liability of $800Million that must

Question

10. Imprudential Inc. has a unfunded pension liability of $800Million 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 8 percent, what is the present value of this Liability?

17. Suppose you are still committed to owning a $160,000 Ferrari. If you believe your mutual fund can achieve a 10.75 percent annual rate, and you want to buy the car in 10 years on the day you turn 30, how much must you invest today?

Explanation / Answer

present value of the liability = 800/1.0820 = 171.64 mllion

17. amount to be invested today = 160,000/1.107510 = 57,634.51

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