Julie has just retired. Her company’s retirement program has two options as to h
ID: 2406149 • Letter: J
Question
Julie has just retired. Her company’s retirement program has two options as to how retirement benefits can be received. Under the first option, Julie would receive a lump sum of $136,000 immediately as her full retirement benefit. Under the second option, she would receive $25,000 each year for 5 years plus a lump-sum payment of $55,000 at the end of the 5-year period.
Required:
1-a. Calculate the present value for the following assuming that the money can be invested at 11%.
1-b. If she can invest money at 11%, which option would you recommend that she accept?
Explanation / Answer
Requirement 1-a First Option : Receive a lump sum of $136,000 immediately Present Value $ 136,000 Second Option year Receipts PV Factor @ 11% Present value year 1- 5 25,000 3.69590 92,398 year 5 55,000 0.59345 32,640 Present Value 1,25,037 Requirement 1-b If she can invest money at 11% , second option would recommeded.
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