After completing a long and successful career as senior vice president for a large bank, you arepreparing for retirement. After visiting the human resources office, you have found that you haveseveral retirement options: (1) you can receive an immediate cash payment of $1 million, (2) youcan receive $60,000 per year for life (your remaining life expectancy is 20 years), or (3) you canreceive $50,000 per year for 10 years and then $70,000 per year for life (this option is intended togive you some protection against inflation). You have determined that you can earn 8 percent onyour investments. Which option do you prefer and why?
After completing a long and successful career as senior vice president for a large bank, you arepreparing for retirement. After visiting the human resources office, you have found that you haveseveral retirement options: (1) you can receive an immediate cash payment of $1 million, (2) youcan receive $60,000 per year for life (your remaining life expectancy is 20 years), or (3) you canreceive $50,000 per year for 10 years and then $70,000 per year for life (this option is intended togive you some protection against inflation). You have determined that you can earn 8 percent onyour investments. Which option do you prefer and why?
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 43P
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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 have found that you have
several retirement options: (1) you can receive an immediate cash payment of $1 million, (2) you
can receive $60,000 per year for life (your remaining life expectancy is 20 years), or (3) you can
receive $50,000 per year for 10 years and then $70,000 per year for life (this option is intended to
give you some protection against inflation). You have determined that you can earn 8 percent on
your investments. Which option do you prefer and why?
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