Compare options of lump sum vs annuity payments for life
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Your son has discovered that he can throw a fastball at 114 mph. The Yankees have offered him his choice of $500 million one time signing bonus with no additional payments or a guaranteed $18 million annual salary for the rest of his life.
Assuming his required return is 12%, at what age would he become indifferent to which option he takes (ignore tax issues.) ?
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Assume the annual salary is paid at the end of each year.
Present value of annuity=PMT*[(1 - (1 / (1 + i)^n)) / i]
If the ...
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