After working for a long time (20 years) with your company, you have decided to accept the company’s termination offer of $24,000 per year for 25 years or accept a lump sum of $374,928 one year from today.
a) If you can earn 7% per year on other investments, will you accept this lump sum or take the annuity payments? Show the calculations used to accept or reject any one of the two options.
b) What interest rate the company is offering you in the annuity? Will your decision change?