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

question 57

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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Definitions:

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Expenses incurred in promoting a product, service, or brand to potential customers.

Monopolistically Competitive Firm

A type of firm in a market structure where many companies sell products that are similar but not identical, allowing for significant competition but with some control over price.

ATC

Average Total Cost, which is the total cost of production (fixed plus variable costs) divided by the quantity of output produced.

AVC

Average Variable Cost, which is the variable cost per unit of output, typically considered in the short run.