A 65 year-old man is retiring and can take either $500,000 in cash or an ordinary annuity that promises to pay him $50,000 per year for as long as he lives. Which of the following statements is MOST correct? Select one: a.Because of the time value of money, the man will always be better off taking the $500,000 up front. b.The higher the interest rate, the more likely the man will prefer the $500,000 lump sum. c.If the man expects to live more than 10 years, then he will prefer the annuity. d.If the man is certain the company will not default on its future payments, he should select the $50,000 per year. e.None of these solutions is correct.
A 65 year-old man is retiring and can take either $500,000 in cash or an ordinary annuity that promises to pay him $50,000 per year for as long as he lives. Which of the following statements is MOST correct? Select one: a.Because of the time value of money, the man will always be better off taking the $500,000 up front. b.The higher the interest rate, the more likely the man will prefer the $500,000 lump sum. c.If the man expects to live more than 10 years, then he will prefer the annuity. d.If the man is certain the company will not default on its future payments, he should select the $50,000 per year. e.None of these solutions is correct.
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 34P
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A 65 year-old man is retiring and can take either $500,000 in cash or an ordinary annuity that promises to pay him $50,000 per year for as long as he lives. Which of the following statements is MOST correct?
Select one:
a.Because of the time value of money, the man will always be better off taking the $500,000 up front.
b.The higher the interest rate, the more likely the man will prefer the $500,000 lump sum.
c.If the man expects to live more than 10 years, then he will prefer the annuity.
d.If the man is certain the company will not default on its future payments, he should select the $50,000 per year.
e.None of these solutions is correct.
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