A 65 Year-Old Man Is Retiring and Can Take Either

question 124

Multiple Choice

A 65 year-old man is retiring and can take either $500,000 in cash or an ordinary annuity that promises to pay him $50,000 per year for as long as he lives.Which of the following statements is MOST correct?

• A) Because of the time value of money, the man will always be better off taking the $500,000 up front.
• B) The higher the interest rate, the more likely the man will prefer the $500,000 lump sum.
• C) If the man expects to live more than 10 years, then he will prefer the annuity.
• D) If the man is certain the company will not default on its future payments, he should select the $50,000 per year.

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