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 to choose from:
An immediate cash payment of $1.14 million.
Payment of $64,000 per year for life.
Payment of $54,000 per year for 3 years and then $74,000 per
year for life (this option is intended to give you some protection
You believe you can earn 6 percent on your investments and your
remaining life expectancy is 6 years.
1. Calculate the net present value of each option. (Future
Value of $1, Present Value of $1, Future Value Annuity of $1,
Present Value Annuity of $1.) (Use appropriate factor(s)
from the tables provided. Enter your answers in dollars but not in
millions. Round the final answer to nearest whole
2. Determine which option you prefer.