John is preparing to retire, and he knows he'll receive a pension from his company. The pension will pay John $25,000 per year for 20 years. A lump-sum payment of $500,000 today is also an option for John, and the account John would use for that money would pay interest of 3% per year, compounded
annually
Since the present value of all the yearly pension payments is
John should choose the
option for his pension.