Mr. Jackson has been awarded a bonus for his outstanding work. His employer offers him a choice of a lump-sum of $5,000 today, or an annuity of $1,250 a year for the next five years
Which option should Mr. Jackson choose if his opportunity cost is 9 percent?
PVA = ($1,250/0.09 ) × [1-1/(1.09 )5] = $4,862.06
Mr. Jackson should choose a lump-sum of $5,000 today.
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