Amanda is ready to retire and as a retirement benefit, she can choose to take $3

Question

Amanda is ready to retire and as a retirement benefit, she can choose to take $380,000 now or $50,000 at the end of each year for a period of 10 years. To compare the two options, she must calculate the present value of both alternatives. She believes a discount rate of 5% would be the most appropriate rate to apply. How much is the present value if she takes the option of $50,000 a year for 10 years? Please refer to the following data, if needed:

Present Value of an Annuity of $1

5%

6%

7%

8%

9%

10%

8

6.463

6.210

5.971

5.747

5.535

5.335

9

7.108

6.802

6.515

6.247

5.995

5.759

10

7.722

7.360

7.024

6.710

6.418

6.145

$380,000

$386,100

$321,000

$399,000

Present Value of an Annuity of $1

5%

6%

7%

8%

9%

10%

8

6.463

6.210

5.971

5.747

5.535

5.335

9

7.108

6.802

6.515

6.247

5.995

5.759

10

7.722

7.360

7.024

6.710

6.418

6.145

Explanation / Answer

Answer is $386,100

Option 2:

$50,000 at the end of each year for 10 years

Discount Rate = 5%

Present Value = $50,000 * PVA of $1 (5%, 10)
Present Value = $50,000 * 7.722
Present Value = $386,100

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.