Your Pension Plan Has Two Alternative Payout Methods

question 5

Multiple Choice

Your pension plan has two alternative payout methods.The first is a lump sum of $300,000 on your 65th birthday.The second is ordinary annuity with the first payment on your 66th birthday and the last payment on your 85th birthday.If the interest rate is 10.5%,then what size annuity payment would equate the value of the two alternatives?

• A) $36,447.98
• B) $35,911.96
• C) $37,059.21
• D) $35,237.89
• E) $34,687.32

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Definitions:

Underlying Continuum

An uninterrupted sequence or range in which items change gradually from one condition, form, or level to another, and are not perceived as discrete steps.

Nominal Level

The most basic level of measurement that categorizes data without implying any quantitative order or degree of difference between the categories.

Median

The middle value in a data set, separating the higher half from the lower half, providing a measure of central tendency that is not influenced by extreme values.

Central Tendency

A statistical measure that identifies a single value as representative of an entire distribution of data, such as the mean, median, or mode.