Imprudential, Inc. has an unfunded pension liability of $850 million that must be paid in 25 years

You're trying to save to buy a new $160,000 Ferrari. You have $58,000 today that can be invested at your bank. The bank pays 6 percent annual interest on its accounts. How many years will it be before you have enough to buy the car? Assume the price of the car remains constant.    A.  16.67 years B.  17.04 years C.  17.41 years D.  17.87 years E.  18.02 years $160,000 = $58,000 × (1 + .06)t; t = 17.41 years

55.

Imprudential, Inc. has an unfunded pension liability of $850 million that must be paid in 25 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. The relevant discount rate is 6.5 percent. What is the present value of this liability?    A.  $159,803,162 B.  $171,438,907 C.  $176,067,311 D.  $184,519,484 E.  $191,511,367 PV = $850,000,000 × [1/(1.065)25] = $176,067,311

56.

You have just received notification that you have won the $1.4 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday, 78 years from now. The appropriate discount rate is 8 percent. What is the present value of your winnings?    A.  $3,288.16 B.  $3,459.99 C.  $5,309.91 D.  $13,333.33 E.  $25,000.00 PV = $1,400,000 × [1/(1.08)78] = $3,459.99

57.

Your coin collection contains fifty-four 1941 silver dollars. Your grandparents purchased them for their face value when they were new. These coins have appreciated at a 10 percent annual rate. How much will your collection be worth when you retire in 2060?    A.  $3,611,008 B.  $3,987,456 C.  $4,122,394 D.  $4,421,008 E.  $4,551,172 FV = $54 × (1.10)119 = $4,551,172