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.