Provide Sue with financial advice on which option has the potential to yield the highest...
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Accounting
Provide Sue with financial advice on which option has the potential to yield the highest monetary value. Support your rational with calculations using time value of money and comment on the risk return relationship for each option, assume interest rate on savings is 4% and is compounded semi-annually.
Sue James is a 55-year old accountant who works at Ernst and Young (EY) who is about to retire. She has the following decision to make:
Option A Select a lump sum gratuity payment of $120,000 with a reduced pension of $1,750 per month.
Option B Select a monthly pension of $3,300 with no lump sum gratuity payment.
In addition, Sue has a loan of $72,000 with loan payments of $1,200 per month for the next five years.
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