You are retiring from your job and are given two options: You can accept a lump

Question

You are retiring from your job and are given two options: You can accept a lump sum payment from the company, or you can accept a smaller annual for as long as you live. How would you decide which option is best? What information would you need? Assume you know the lump sum amount you would receive and the size of the smaller annual payments that would continue for as long as you live You should take the option with A. the highest present discounted value, which to calculate you would need the life the highest asset beta, which to calculate you would need the sensitivity or an assets return to market movements and, therefore, the assets nondiversifiable risk the highest present discounted value, which to calculate you would need the effec appropriate discount rate and your number of remaining years of ?. O c. tive yield and your number of remaining years of life OD. the largest potential annual payments, which to calculate you would need the appropriate risk premium and your number of remaining years of life O E. the highest risk premium. which to calculate you would need the risk-free rate of return and the expected rate of return on the options Click to select your answer

Explanation / Answer

Ans

A IS absolutely right. We need to compare present value of future small income to fixed lumpsum payment. For this no. Of years and interest rate is needed

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