After working for a long lime (25 years) with your company, you have decided to
ID: 2737750 • Letter: A
Question
After working for a long lime (25 years) with your company, you have decided to accept the company's termination offer of $30, 000 per year for 25 years or accept a lump sum of $320,250 one year from today. If you can cam 6% per year on other investments, will you accept this lump sum or take the annuity payments? By how much are you better oil with the plan you selected? Show the calculations used to accept or reject any one of the two options. What interest rate the company is offering you in the annuity?Explanation / Answer
Yearly payment = $30000
Nper = 25 years
Rate = 6%,
PV = PV(Rate,Nper,PMt,FV) = PV(6%,25,30000,0) = $383,500.68.
THe present value of the annuity payments are more than the lumpsum payment. thus it is preferred to opt for annual payments.
Interest rate offered:
Rate(Nper,Pmt,FV) = Rate(25,30000,-320,250,0) = 8%.