Imprudential, Inc., has an unfunded pension liability of $540 million that must be paid in 20 years.

Question:

Imprudential, Inc., has an unfunded pension liability of $540 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 5.6 percent, what is the present value of this liability?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...