Question

Select the correct answer from each drop-down menu.

John is preparing to retire, and he knows he'll receive a pension from his
company. The pension will pay John $25,000 per year
for 20 years. A lump-sum payment of $500,000 today is also an option for John, and the account John would use for that money
would pay interest of 3% per year, compounded annually.
Since the present value of all the yearly pension payments is_______
John should choose the________
option for his pension.

Answer 1

$371,937 and lump-sum

Explanation:

Answer 2

John is preparing to retire, and he knows he’ll receive a pension from his company. The pension will pay John $25,000 per year for 20 years. A lump-sum payment of $500,000 today is also an option for John, and the account John would use for that money would pay interest of 3% per year, compounded annually.

Since the present value of all the yearly pension payments is "$371,937"

, John should choose the "lump-sum" option for his pension.

Explanation:

I got it right on Plato