M3a2: lasa 1—the time value of money
Mary would be eligible for a one-time lump sum payment of $912,599.20 if she chooses to take the bonus in this form instead of an annual payment plan with an appropriate interest rate at 7%. This amount was calculated using the present value formula, which takes into consideration the present value of future payments and discounts them according to a given interest rate. In Mary’s case, she would be receiving $75,000 annually for 20 years with an interest rate of 7%, which equates to a total payment amount of $1 500 000. Applying the present value formula to this figure produces the lump sum amount due on retirement day – $912 599.20.
It is important for Mary to consider her overall financial situation before deciding between taking a one-time lump sum or opting for a long term annual payment plan as both options have their own unique benefits and drawbacks depending on individual circumstances. Additionally financial advisors are available who can provide further advice and insight into these decisions no matter what challenge may come up along way ultimately leading successful outcome when all said done