You are thinking of retiring. Your retirement plan will pay you either

QUESTION

You are thinking of retiring. Your retirement plan will pay you either $250,000 immediately on retirement or $350,000 five years after the date of your retirement. Which alternative should you choose if the interest rate is:a. 0% per yearb. 8% per yearc. 20% per year
Interest rate Numbers of years Amount After int added a 0% 5 $250,000 $250,000 b 8% 5 $250,000 $340,122.2 c 20% 5 $250,000 $518,400 Calculation c)0% No interest so same amount 250000 b) 8% Years Amount 8% 1 250000 20000 2 270000 21600 3 291600 23328 4 314928 25194.24 5 340122.2 20000 In 5 years time with interest 8% it reaches up to 340122.2 So it is less than 350000 so in this case we accept proposal

2 that is to take $350,000 c) 20% Years Amount 20% 1 250000 50000 2 300000 60000 3 360000 72000 4 432000 86400 5 518400 In 5 years time with interest 20% it reaches up to 518400 So it is greater than 350000 so in this case we accept proposal 1 that is to take $250,000

ANSWER:

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