1.8 Personal Financial Planning Problem: Payback Method (Solutions) 

Answer #1

X = $38,400

Y = 96 months

Z = 8 years.

Shlomo would have to live beyond 66 + 8 = 74 years for his decision to wait four years to take the benefits to have paid off. 

Answer #2 

His longevity matters. If he expects to live beyond age 74, he should delay the receipt of his retirement benefits.

Answer #3

If he calculates a discounted payback, he would have to live even longer depending on the discount rate. The higher the discount rate, the longer he would need to live.

Answer #4

An advisor should learn some things about Shlomo’s health and family. Is he likely to live long? Does he wish to provide for his family?



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Corporate Finance Copyright © 2023 by Kenneth S. Bigel is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

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