Consider a 529 (college savings) plan that will pay $20,000 once a year for a 4-year period (4 annual payments). The first payment will come in exactly 5 years (at the end of year 5) and the last payment in 8 years (at the end of year 8). What is the duration of the pension obligation? The current interest rate is 8% per year for all maturities.
Consider a 529 (college savings) plan that will pay $20,000 once a year for a 4-year period (4
annual payments). The first payment will come in exactly 5 years (at the end of year 5) and the
last payment in 8 years (at the end of year 8).
What is the duration of the pension obligation? The current interest rate is 8% per year
for all maturities.
Discounted cash flow is a method of valuing an investment based on the expected future cash flows it will generate, discounted back to their present value. This approach takes into account the time value of money, which states that a dollar received in the future is worth less than a dollar received today. By discounting future cash flows to their present value, DCF provides an estimate of the investment's intrinsic value, which can be compared to its market price to determine if it is overvalued or undervalued.
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