What is the present value of policy

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You are reviewing two retirement policies as described below. Assume that all payments are expected to be received at the end of the year referenced. For example, if a payment is expected in five years, the payment would be made at the end of the fifth year and if ten annual payments are to be made beginning in six years, the first payment would occur at the end of the sixth year from today.

Policy A: Ten equal end-of-year payments of $65,000 per year beginning in 20 years.

Policy B: One payment of $100,000 in 10 years, a second payment of $200,000 in 20 years, and a third payment of $300,000 in 30 years.

-What is the present value of each policy at a discount rate of 4 percent. Which would you prefer?

-What is the present value of each policy at a discount rate of 8 percent. Which would you prefer?

Reference no: EM133068293

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