Can anyone help with this problem? And show how you got your answer? Thanks! Jer

Question

Can anyone help with this problem? And show how you got your answer? Thanks!

Jerry recently was offered a position with a major accounting firm. The firm offered Jerry either a signing bonus of $23,000 payable on the first day of work or a signing bonus of $26,000 payable after one year of employment. Assuming that the relevant interest rate is 10%, which option should Jerry choose? A) The signing bonus of $23,000 payable on the first day of work OB) The signing bonus of $26,000 payable after one year of employment. Oc) Insufficient information to determine 0 D) The options are equivalent

Explanation / Answer

Answer (B) - Signing Bonus of $26000 at the end of year

$2300

($23000*10%)

Decision - Since taking bonus of $26000 at the end of year is better option since it will save $700 ($26000 - $25300).

Particulars Bonus $23000 Bonus $2600 Bonus amount $23000 (At the beginning of the year) $26000 (At the end of Year) Interest earning

$2300

($23000*10%)

Total Bonus $25300 $26000

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