Mark is due to retire in a months time and one of his pension funds has offered him two alternatives. His money can be received either in the form of $16,000 at the end of each of the next 25 years (i.e., a total of $400,000 over 25 years) or as a single lump sum amount of $200,000 paid immediately.

(a) If Mark can earn 4% annually on his investments over the next 25 years, which alternative he should take? Ignore taxes and any other considerations.

(b) Would Marks decision in part (a) change if he could earn 8% rather than 5% of his investments over the next 25 years? Why?

(c) At approximately what interest rate would Mark be indifferent between the two options?