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. $200,000 cash payment to be paid immediately
2. A 20-year annuity of $12,000 beginning immediately
3. A 10-year annuity of $25,000 beginning at age 65

Required:

Which alternative should John choose assuming that he is able to invest funds at a 12% rate?

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. $200,000 cash payment to be paid immediately 2. A 20 -year annuity of $12,000 beginning immediately 3. A 10-year annuity of $25,000 beginning at age 65 Required: Which alternative should John choose assuming that he is able to invest funds at a 12% rate