You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They
ID: 2384293 • Letter: Y
Question
You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They’ve offered you two different salary arrangements. You can have $72,000 per year for the next two years, or you can have $61,000 per year for the next two years, along with a $17,000 signing bonus today. The bonus is paid immediately, and the salary is paid in equal amounts at the end of each month.
If the interest rate is 9 percent compounded monthly, what is the PV for both the options? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
If the interest rate is 9 percent compounded monthly, what is the PV for both the options? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Explanation / Answer
Solution:
Option 1 Option 2 Each year salary 72,000 61,000 Per Month Salary 6,000 5,083.33 Now, PVAF(Present value of annuity factor for 24 periods and rate of interest 0.75 %) 21.8891 21.8891 Present Value of option = PVAF*MONTHLY SALARY $131,334.60 $111,269.5 Add: Beginning bonus 0 17,000 Present Value of options $ 131,334.60 $ 128,269.59 Number of periods = 12 * 2 years 24 Rate of Interest = 9% /12 0.75%Related Questions
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