Question

After completing a long and successful career as senior vice president for a large bank, you are preparing for retirement. After visiting the human resources office, you have found that you have several retirement options to choose from:
a. An immediate cash payment of $1 million.
b. Payment of $92,000 per year for life.
c. Payment of $82,000 per year for 10 years and then $95,000 per year for life (this option is intended to give you some protection against inflation).
You believe you can earn 8 percent on your investments and your remaining life expectancy is 20 years.

Required:
1. Calculate the present value of each option.
2. Explain which option you prefer and why.



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  • CreatedFebruary 27, 2015
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