John Ross has received his pension statement that promises to pay him a lump sum of £150,000 when he retires exactly 10 years from today. A pension release firm has offered him an immediate cash payment in exchange for his pension.

a. What is the least amount John should accept if he can earn the following rates of return on similar-risk investments during the 10-year period?

(1) 4%

(2) 8%

(3) 12%

b. Rework part a under the assumption that the £150,000 payment will be received in 15 rather than 10 years.

c. Compare your findings in parts a and b, and explain the relationship indicated between future value, length of investment, and the applicable rate of return.