Question
Your friend knows that you have a solid understanding of financial matters and she asked you for a piece of advice. Due to the economic
Your friend knows that you have a solid understanding of financial matters and she asked you for a piece of advice.
Due to the economic down turn, her employer is offering a plan for early retirement where a, considerable, single payment can be made NOW (i.e., at Year 0).
Your friend was planing to retire in 5 years from now. Her current annual salary is $290000. If you are to show this in a cash flow diagram (CFD), this will appear in Year 1. Her salary will go up by 3% each of those 5 years. Five years from now, her salary will be $198122.3966 (i.e., in Year 5 in a CFD).
She has the option to invest as much of her income as she wants (even all of it!!!) in an account that offers an annual interest of 10%.
She is asking you to help her to find out what is the minimum early-retirement payment that she should receive from your employer that will give you the same economic value as if she stays working for the next five years until her regular retirement?
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