You\'ve just joined the investment banking firm of Dewey, Cheatum, and Howe. The

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 $193,000 per year for the next two years, or you can have $75,000 per year for the next two years, along with a $40,000 signing bonus today. The bonus is paid immediately, and the salary is paid at the end of each year.
(a)If the interest rate is 9 percent compounded monthly, what is the present value of the first arrangement?
(b)If the interest rate is 9 percent compounded monthly, what is the present value of the second arrangement?

Explanation / Answer

1) PV of the first arrangement:

N or the number of cofounding periods = 2

I/Y or the interest rate per period = 9.38% (As the interest is compounded monthly, we need to find the EAR or the effective annual rate using the formula: Effective Annual Rate = (1 + Periodic Rate)m

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.