A Pension Fund Pays Out $50,000 a Year in Perpetuity

Multiple Choice

A pension fund pays out $50,000 a year in perpetuity, based on a cost of capital of 5%, to retiring employees.Alternatively, the employee can take out a lump sum of $1 million payable immediately.The employee should choose

A) the lump sum, because its future value is $25 million.
B) the pension fund, because its present value is $1.25 million.
C) the pension fund, because it offers steady payments in perpetuity.
D) either option gives the same value over time.