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In June 2012, General Motors (GM) offered a set of "buyouts" to 42,000 of its retired former experienced workers such that a 65-year old GM retiree who was then receiving $3,000 per month in a retirement stipend could instead receive of a "buyout" check of about $500,000. If the retiree accepts the check, then GM is off the hook for his/her retirement. However, it he/she doesn't accept the check, it's always possible that the Prudential annuity that now backs the GM retirement fund could go belly up and the retirees would then receive nothing.

GM retirees had 90 days to make up their minds. Suppose you are a currently retired former GM retiree receiving $3,000 per month ($36,000 per year) and now could instead receive a $500,000 "buyout."

describe what you would do and why. Make clear your assumptions, for ex, about life expectancy, inflation, interest rates, and risk and your rate of discount.

Hint: You might want to do some Excel spreadsheet work in order to give some realism to your thinking. To make things uniform, for life expectancies, let's use the standard Virginia life table (2011 Code of Virginia, §8.01-419, Table of Life Expectancy, http://law.justia.com/codes/virginia/2011/title8-01/chapter14/8-01-419) to deal with any problems about how long someone might live. Most states have the same type of table, but let's use Virginia's in this problem.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M938650

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