Herbert is the court jester in the Kingdom of Nod. Herbert is 60 years old with a life expectancy of 77 and is paid 60,000 rubles per annum. Queen Eleanor wants him to resign on a life-time half-pay pension, beginning in 5 years time, so that the King's nephew can take over the job when he finishes school. Herbert refuses since his job is for life. Herbert suggests instead that he retire in 5 years with a pension of 45,000 rubles per annum with his wife (who is expected to outlive him by 5 years) getting half his pension on his death. In addition, Herbert wants to stay on staff for 5 years after his retirement as an advisor to his successor at a stipend on 5,000 rubles per annum. Furthermore, Herbert's retirement would force him to give up his role in the centennial celebrations of the Kingdom, coming up in 15 years. He was to have received an honorarium of 30,000 rubles annually for the two years preceding the celebrations. If he gives up this honour (and the associated compensation) he wants to receive a lump sum payment of 40,000 rubles at his retirement date.

The Queen's head is spinning. She offers to pay Herbert an extra 110,000 rubles per annum for the next 5 years and a lump sum of 25,000 at the retirement date if he will agree to retire without any further payments. All payments come at year-end. The interest rate is 6 percent.

1. Which alternative (the Queen's or Herbert's) gives Herbert's family the higher present value, using their expected lifetimes?
2. What other personal factors will influence Herbert's choice?