A retirement plan provides its enrollees with two options. Option 1 provides participants with $50,000 a year over the next 10 years. Option 2 pays a lump sum payment of $300,000 today (and no future payments). Suppose an enrollee takes Option 2. What is the enrollee’s likely discount factor?
A retirement plan provides its enrollees with two options. Option 1 provides participants with $50,000 a year over the next 10 years. Option 2 pays a lump sum payment of $300,000 today (and no future payments). Suppose an enrollee takes Option 2. What is the enrollee’s likely discount factor?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A retirement plan provides its enrollees with two options. Option 1 provides participants with $50,000 a year over the next 10 years. Option 2 pays a lump sum payment of $300,000 today (and no future payments). Suppose an enrollee takes Option 2. What is the enrollee’s likely discount factor? 3.2% 9.8% 11.1% 5.7%
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