Compare options of lump sum vs annuity payments for life


Problem:

Your son has discovered that he can throw a fastball at 114 mph. The Yankees have offered him his choice of $500 million one time signing bonus with no additional payments or a guaranteed $18 million annual salary for the rest of his life.

Assuming his required return is 12%, at what age would he become indifferent to which option he takes (ignore tax issues.)?

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Finance Basics: Compare options of lump sum vs annuity payments for life
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