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