John Roberts is 55 years old and has been asked to accept early retirement from his company.

Question:

John Roberts is 55 years old and has been asked to accept early retirement from his company. The company has offered John three alternative compensation packages to induce John to retire:

1. $180,000 cash payment to be paid immediately.
2. A 20-year of $16,000 beginning immediately.
3. A 10-year of $50,000 beginning at age 65.

Required:
Which alternative should John choose assuming that he is able to invest funds at a 7% rate?

Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,...