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Retirement Options - Lump Sum Vs. Payments

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A person is about to retire and must choose between three retirement plan options. One provides $55,000 per year for the renaubder of his life. Another provides 85% of this amount and increases by 5% each year. A third option gives him a $400,000 lump-sum settlement. If his remaining life expectancy is twelve years, the prime interest rate is 8% and he can ignore taxes, which should he choose?

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Solution Summary

To solve this problem you have to do the following:
1. Find the future value of the first payment option
2. Sum second payment options
3. Find future value of Lump sum payment
4. Compare the three options

(Calculations are below)

Solution Preview

To solve this problem you have to do the following:

To solve this problem you have to do the following:
1. Find the future value of the first payment option
2. Sum second payment options
3. Find future value of Lump sum payment
4. Compare the three options

(Calculations are below)

1. Find the future value ...

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