Today is t=0 and you are thinking of retiring. Your retirement plan will pay you either $300,000 immediately, or 4 yearly payments of $90,000 starting at t=1.
a. Which alternative would you chose if the interest rate is 5% per year?
b. Suppose your financial adviser tells you that you can invest the $300,000 cash at t=0 in an IBM zero-coupon bond with a face amount of $420,000 at t=4. Will this potential investment opportunity change your decision in (a)? Explain.
Today is t=0 and you are thinking of retiring
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