Mathematics
posted by Gibbons .
Suppose an employee of a company is retiring and has the choice of two benefit options under the company pension plan. Option A consists of a guaranteed payment of $1,575,000 at the end of each month for 10 years. Altematively, under option B the employee receives a lumpsum payment equal to the present value of the payments described under option A.
(a) find the sum of the payments under option A.
(b) find the lumpsum payment under option B if it is determined by using an interest rate of 18% compounded monthly.

The monthly payment seems a little high for today's living standards.

a. Option A.1575000 *120mo.=189000000 in 10 yrs.
b. Option B.1.575M @ 18% APR,Compounded
monthly. Pt=Po*(r+1)^n.
Pt=Value at 10 yrs. r=MPR=Monthly percentage rate. n=the number of
interest compounding periods.
r=18/12/100=0.015
n=12*10=120
Pt=1575000*(0.015+1)^120=9401683.52=
Value @ 10yrs.
Evidently, this is not a practical
situation. 
1575000(12mnth*10years)=189,000,000
Respond to this Question
Similar Questions

math
Suppose an employee of a company is retiring and has the choice of two benefit options under the company pension plan. Option A consists of a guaranteed payment of $1,575 at the end of each month for 10 years. Alternatively, under … 
business math
Meg's pension plan is an annuity with a guaranteed return of 7% interest per year (compounded monthly). She would like to retire with a pension of $20000 per month for 20 years. If she works 28 years before retiring, how much money … 
bus math
Meg's pension plan is an annuity with a guaranteed return of 7% interest per year (compounded monthly). She would like to retire with a pension of $20000 per month for 20 years. If she works 28 years before retiring, how much money … 
math
Meg's pension plan is an annuity with a guaranteed return of 7% interest per year (compounded monthly). She would like to retire with a pension of $20000 per month for 20 years. If she works 28 years before retiring, how much money … 
math
Meg's pension plan is an annuity with a guaranteed return of 6% per year (compounded quarterly). She would like to retire with a pension of $50,000 per quarter for 15 years. If she works 31 years before retiring, how much money must … 
Finance
Meg's pension plan is an annuity with a guaranteed return of 7% interest per year (compounded monthly). She would like to retire with a pension of $90000 per month for 25 years. If she works 33 years before retiring, how much money … 
calculus
Meg's pension plan is an annuity with a guaranteed return of 4% per year (compounded quarterly). She would like to retire with a pension of $20,000 per quarter for 10 years. If she works 30 years before retiring, how much money must … 
Math
Meg's pension plan is an annuity with a guaranteed return of 7% per year (compounded quarterly). She would like to retire with a pension of $20,000 per quarter for 15 years. If she works 31 years before retiring, how much money must … 
Business Math
Meg's pension plan is an annuity with a guaranteed return of 3% per year (compounded quarterly). She would like to retire with a pension of $50,000 per quarter for 10 years. If she works 26 years before retiring, how much money must … 
Business Calc
Meg's pension plan is an annuity with a guaranteed return of 3% per year (compounded quarterly). She would like to retire with a pension of $30,000 per quarter for 5 years. If she works 25 years before retiring, how much money must …