Question 2: (25 marks)

You are thinking of retiring. Your retirement plan will pay you either $100,000 immediately on retirement or $140,000 five years after the date of your retirement.

1. Define the present value, list the formula and its main components. (5 marks)

2. Which alternative should you choose if the interest rate is:

1. 0% per year? (5 marks)
2. 8% per year? (5 marks)
3. 20% per year? (5 marks)

Start by drawing a timeline to better explain your calculations. (5 marks)