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You have been given a choice between two retirement policies. Policy A: you will receive equal annual payments of $37,000 at the end of year
You have been given a choice between two retirement policies.
Policy A: you will receive equal annual payments of $37,000 at the end of year for the following
20 years,
Policy B: you will receive one lump-sum of $500,000 now.
- At what interest rate would you be indifferent in choosing between the two policies.
- At what interest rate, will you choose Policy A? At what interest rate will you choose Policy B?
If you expect to be able to earn 6% annually on your investment over the next 20 years, which policy should you take? Why?
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