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    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.) ?

    © BrainMass Inc. brainmass.com June 4, 2020, 1:54 am ad1c9bdddf
    https://brainmass.com/business/annuity/compare-options-lump-sum-annuity-payments-life-426308

    Solution Preview

    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 ...

    Solution Summary

    This solution provides a detailed step by step explanation of the given finance problem.

    $2.19

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