Question 1188856: Upon reaching 60 years old, Mr. Fernandez was given
the option by SSS to either (1) receive a lump sum of
Php200,000.00 or (2) receive a monthly pension of
Php10,000.00 for the next two years. If current rate of
return for investments is at 8 %, compounded monthly,
which option will be better for Mr. Fernandez? Show
your solution for your choice and explain.
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! he could either receive 200,000 as a lump sum or he could receive a monthly pension of 10,000 for the next 2 years.
take 8% and divide it by 12 to get .6666666....% per month.
that's 2/3 of a percent interest per month.
using the finance calculator at https://arachnoid.com/finance/index.html, i get the following:
if they give me 200,000 up front and i invest it at 8% per year compounded for 24 months, i would receive 9045.6 at the end of each month for the next 24 months.
since that's less than 10,000 at the end of each month, i'm better off taking the 10,000 at the end of each month for 24 months.
if they gave me 10,000 at the end of each month for the next 24 months, i would receive the equivalent of 221,105.43 up front.
that's 21,105.43 more than i would have gotten with their 200,000 up front lump payment.
it is very clear from this analysis that mr. fernandez should take the 10,000 at the end of each month option.
here are the results of my analysis using the arachnoid financial calculator
inputs are everything except pmt.
output is pmt.
inputs are everything except pv.
output is pv.
for both analyses, .....
interest rate is 8% / 12 = .6666666.....% per month.
payments are made at the end of each month.
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