1) Today is your 30th birthday and you must choose between two retirement options. The first option will provide you with 10 equal annual payments of $100, 000 beginning on your 65th birthday. The second option will provide you with one payment of $1, 000, 000 on your 70th birthday. If the interest rate is 6 percent per year and you are assured of living to at least 80 years of age, which option is better?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 19P

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Question

1) Today is your 30th birthday and you must choose between two retirement options. The first option will provide you with 10 equal annual payments of $100, 000 beginning on your 65th birthday. The second option will provide you with one payment of $1, 000, 000 on your 70th birthday. If the interest rate is 6 percent per year and you are assured of living to at least 80 years of age, which option is better? 2) A retirement home in Florida costs $200, 000 today. Housing prices in Florida are increasing at a rate of 4% per year. Joe wants to buy the home in 8 years when he retires. Joe has $25, 000 right now in a savings account paying 8% interest per year. Joe wants to make eight equal annual deposits into the savings account starting today. How much must each deposit be so Joe will have enough money in his savings account to buy the retirement home when he retires?

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