Shuai is 43 years old and has been asked to accept early retirement from his company. The company offered Shuai three alternative compensation packages to induce Shuai to retire: 1. $231,000 cash payment to be paid immediately. 2. A 20-year annuity of $22,000 beginning immediately. 3. A 10-year annuity of $75,000 beginning on July 1 of the year Shuai reaches age 53 (after 10 years). Required: Determine the present value of each alternative, assuming that Shuai is able to invest funds at a 8% rate. Whic alternative should he choose?
Shuai is 43 years old and has been asked to accept early retirement from his company. The company offered Shuai three alternative compensation packages to induce Shuai to retire: 1. $231,000 cash payment to be paid immediately. 2. A 20-year annuity of $22,000 beginning immediately. 3. A 10-year annuity of $75,000 beginning on July 1 of the year Shuai reaches age 53 (after 10 years). Required: Determine the present value of each alternative, assuming that Shuai is able to invest funds at a 8% rate. Whic alternative should he choose?
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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Transcribed Image Text:Shuai is 43 years old and has been asked to accept early retirement from his company. The company offered
Shuai three alternative compensation packages to induce Shuai to retire:
1. $231,000 cash payment to be paid immediately.
2. A 20-year annuity of $22,000 beginning immediately.
3. A 10-year annuity of $75,000 beginning on July 1 of the year Shuai reaches age 53 (after 10 years).
Required:
Determine the present value of each alternative, assuming that Shuai is able to invest funds at a 8% rate. Which
alternative should he choose?
Note: Round your final answers to nearest whole dollar amount. Use tables, Excel, or a financial calculator.
(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
PV
Alternative
1
2
3
Shuai should choose Alternative 3
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