Interest rates are used to discount those cash flows and calculate their present value.

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Three factors determine the health of any pension fund: asset returns, company contributions and the discount rate, which is used to calculate the present value of pension liabilities and is tied to interest rates.

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It calculates an intrinsic value by discounting a stream of future earnings back to the present, using a discount rate that is a function of both Aaa bond yields and the creditworthiness of the target company.

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