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ou have reached the age of 65 at which you can retire from the company you...

ou have reached the age of 65 at which you can retire from the company you have worked for since graduation from Midland. The company offers two payout options for your $1 million retirement fund: they will pay it in full today, or pay you $1.3 million three years from now. You believe your opportunity cost is an 8% annual return you could earn in the stock market during that same time period. What will be the value of the immediate payout three years from now (to the nearest dollar)?

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Answer #1

WE HAVE TO CALCULATE FUTURE VALUE HERE.

OPTION 1 : $1 MILLION TODAY

FUTURE VALUE = $1.3 MILLION X FVIF @8%, 3 YEARS = $1.3 MILLION X (1.08)3

FUTURE VALUE = $1 MILLION X 1.259712 = $1.259712 MILLION

ANSWER : $1.259712 MILLION = $1.2597 MILLION (ROUNDED TO 4 DECIMALS) (THUMBS UP PLEASE)

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