# corporate finance

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 chose if the interest rate is a) 0% per year; b) 8% per year and c) 20% per year

1. 👍
2. 👎
3. 👁
1. Interest rate on what? Is that figuring the interest rate you can get on \$250,000 for five years?

This is an ambiguous question.

1. 👍
2. 👎
2. I solved it by myself :) I t was a interest rate on 350,000 !!

The retirement plan will pay \$250,000 immediately ‘OR’
Pays \$350,000 after 5 years from the date of retirement with:
a) Interest rate (r)=0%
Then, the PV = FV/(1+r) n
= 350,000/(1+0) 5
=\$350,000
So, getting \$250,000 immediately is better than getting \$350,000 after five years because money value today is always higher than the money value after the years.

b) Interest rate (r)=8%
Then, the PV = FV/(1+r) n
= 350,000/(1+0.08) 5
=\$238,095
So, getting \$250,000 immediately is better than getting \$238,095 after five years as it is not worth waiting for 5 years to get lesser money. It shows that I am going to get \$238,095 now which is not good than \$250,000.

c) Interest rate (r)=20%
Then, the PV = FV/(1+r) n
= 350,000/(1+0.20) 5
=\$140,675
So, getting \$250,000 immediately is better than getting \$350,000 after five years because the value of money I am getting today will be just \$140,675 which is worse.

So, from all the options, the option of getting \$250,000 immediately after retirement is better than the option of getting \$350,000 after 5 years with different interest rates.

1. 👍
2. 👎
3. You have been offered a unique investment opportunity. If you invest \$10,000 today, you will receive \$500 one year from now, \$1500 two years from now, and \$10,000 ten years from now.
a. What is the NPV of the opportunity if the interest rate is 6% per year? Should you take the opportunity?
b. What is the NPV of the opportunity if the interest rate is 2% per year? Should you take it now?

1. 👍
2. 👎

## Similar Questions

1. ### math

Ginny Jones receives \$650 gross salary biweekly. Her income tax rate is 15%. Her group health plan contribution is \$24.50 per pay period. She belongs to the company retirement plan, to which she contributes 6.5% of her earnings.

2. ### Finance

Your client is 40 years old and she wants to begin saving for retirement, with the first payment to come one year from now. She can save 5000 per year; and you advise her to invest it in the stock market, Which you expect to

3. ### Programming Logic and Design (help?)

Design a retirement planning calculator for Skulling Fincancial Services. Allo a user to enter a number of working years remaining in the user's career and the annual amount of money the user can save. Assume that the user earns

4. ### Personal Finance

Janice Jacobs is planning for her retirement. She knows what assets and liabilities she has now and expects to have in the future. She knows what her spending patterns are likely to be and adjusted them for inflation. She also has

1. ### programming logic and design

I need help writing pseudocode for this problem: Design a retirement planning calculator for skulling financial services • Allow a user enter a number of working years remaining in the user career and the annual amount of money

2. ### Math

Luis has \$150,000 in his retirement account at his present company. Because he is assuming a position with another company, Luis is planning to "roll over" his assets to a new account. Luis also plans to put \$3000/quarter into the

3. ### Math

Luis has \$100,000 in his retirement account at his present company. Because he is assuming a position with another company, Luis is planning to "roll over" his assets to a new account. Luis also plans to put \$2000/quarter into the

4. ### Finance

Sam wants to start saving for retirement. She wants to have \$85,000 per year for 25 years in retirement that will start in 40 years. How much must she deposit in equal annual amounts for the next 20 years if she can earn 9% over

1. ### math

Yon made contributions to a Traditional IRA over the course of 25 working years. Her contributions averaged \$3,000 annually. Yon was in the 26% tax bracket during her working years. The average annual rate of return on the account

2. ### Finances

You want to be able to withdraw \$20,000 from your account each year for 15 years after you retire. If you expect to retire in 20 years and your account earns 7.4% interest while saving for retirement and 4.8% interest while

3. ### Finances

You want to be able to withdraw \$20,000 from your account each year for 30 years after you retire. If you expect to retire in 25 years and your account earns 6.1% interest while saving for retirement and 5.7% interest while

4. ### Finance

You wish to retire in 12yrs and currently have \$50,000 in a savings account yielding 5% annually and \$100,000 in quality “blue chip” stocks yielding 10%. If you expect to add \$30,000 at the end of each year to your stock