Question

Overview

Mary has been working for a university for almost 25 years and is now approaching retirement. She wants to address several financial issues before her retirement and has asked you to help her resolve the situations below.

Issue C:

Mary’s replacement is unexpectedly hired away by another school, and Mary is asked to stay in her position for another three years. The board assumes the bonus should stay the same, but Mary knows the present value of her bonus will change. What would be the present value of her deferred annuity?

Create a spreadsheet or other document, calculating part C of the assignment, and provide a brief explanation for each component including its significance

Mary has been working at the university for 25 years, with an excellent record of service. As a result, the board wants to reward her with a bonus to her retirement package. They are offering her $75,000 a year for 20 years, starting one year from her retirement date and each year for 19 years after that date. Mary would prefer a one-time payment the day after she retires. The appropriate interest rate is 7%.

Answer 1

Present value of Annuity
Year end	Bonus pyments $	PV @ 7%	Present value
1	75000	0.93	70093
2	75000	0.87	65508
3	75000	0.82	61222
4	75000	0.76	57217
5	75000	0.71	53474
6	75000	0.67	49976
7	75000	0.62	46706
8	75000	0.58	43651
9	75000	0.54	40795
10	75000	0.51	38126
11	75000	0.48	35632
12	75000	0.44	33301
13	75000	0.41	31122
14	75000	0.39	29086
15	75000	0.36	27183
16	75000	0.34	25405
17	75000	0.32	23743
18	75000	0.30	22190
19	75000	0.28	20738
20	75000	0.26	19381
		Total Present value	794551