Your retirement annuity is about to start paying, but you have to make a choice in how
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Question:
Your retirement annuity is about to start paying, but you have to make a choice in how you want the money to be paid out to you. You can receive $300,000 all up front (t=0), or choose to get 48 monthly payments, with the first payment starting 12 months from now. The annual percentage rate (APR) is 9%.
a. Calculate the monthly payment that makes you indifferent between receiving the money all up front or in monthly installments as described above.
b. Your insurance company proposes an alternative method of payment, where you receive 5 semi-annual payments of $40,000 each, starting one year from now and 30 weekly payments of $5,000 starting immediately. Calculate the value of this choice and decide whether this is preferred or not.
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