Present Value Calculations
Calculate the present value of the cash flows associated with the retirement options under your pension plan, using an eight percent interest rate.
a. One retirement option under the pension plan is to receive 90 percent of your current annual salary of $80,000 at the end of the year, for life, which is expected to be 20 years.
b. Another option is to receive a lump sum distribution of $1,300,000 immediately.
c. A third option is to receive five annual (year-end) payments of $300,000.
d. Evaluate which option you prefer and describe why you prefer it.
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