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 found that you have several retirement options to choose from: An immediate cash payment of $1.11 million. Payment of $53,000 per year for life. Payment of $43,000 per year for the first 3 years and then $63,000 per year for the remainder of your life (this option is intended to give you some protection against inflation). You believe you can earn 7 percent on your investments, and your remaining life expectancy is 6 years. Required: Calculate the present value of each option. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Determine which option you prefer.
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 found that you have several retirement options to choose from: An immediate cash payment of $1.11 million. Payment of $53,000 per year for life. Payment of $43,000 per year for the first 3 years and then $63,000 per year for the remainder of your life (this option is intended to give you some protection against inflation). You believe you can earn 7 percent on your investments, and your remaining life expectancy is 6 years. Required: Calculate the present value of each option. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Determine which option you prefer.
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 43P
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Question
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 found that you have several retirement options to choose from:
- An immediate cash payment of $1.11 million.
- Payment of $53,000 per year for life.
- Payment of $43,000 per year for the first 3 years and then $63,000 per year for the remainder of your life (this option is intended to give you some protection against inflation).
You believe you can earn 7 percent on your investments, and your remaining life expectancy is 6 years.
Required:
- Calculate the present value of each option. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.)
-
Determine which option you prefer.
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