Your Aunt Is Evaluating Her Retirement Pension

question 126

Multiple Choice

Your aunt is evaluating her retirement pension.She can retire at age 65 and collect $1,000 per month for the rest of her life.Assume that payments begin one month after her 65^th birthday.If your aunt lives to be exactly 80 years old and can earn 7% interest (compounded monthly) ,what is the equivalent lump sum she would need at retirement to equal the value of the pension?

• A) $106,906
• B) $111,256
• C) $115,313
• D) $215,027

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Definitions:

Direct Method

A cash flow statement preparation method that itemizes actual cash receipts and payments.

Operating Expenses

Costs associated with the day-to-day functions of a business, excluding costs of production or manufacturing.

Prepaid Expenses

Payments made in advance for goods or services, which are recorded as assets until they are actually used.

Noncash Investing

Investment activities that do not involve the immediate outflow of cash but may involve the exchange of non-cash assets or liabilities.