Should the employee select lump sum or the deferred annuity

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Question - A company wishing to reduce its headcount has decided to offer certain employees the opportunity to take early retirement. One of the eligible has decided he would indeed like to retire early. He is 50 years old and a base salary of $500,000. As an incentive to retire early, the company offered him a choice between (A) a lump sum payment equal to two years' base salary, payable today, or (B) a series of quarterly beginning at age 65 and lasting 60 quarters (15 years); during each year the equal quarterly payments will total 30% of the employee's base salary at retirement. Assume the correct discount rate for this analysis is 5% per year, and that if the employee dies before age 80, the remaining payments will be made to his heirs. Should the employee select the lump sum or the deferred annuity?

Reference no: EM132792034

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