Assume a large healthcare system just approved a 355,000 annual (per year) bonus

Question

Assume a large healthcare system just approved a 355,000 annual (per year) bonus to retain its top cardiac surgeon. Assume that $355,000 will be paid to the surgeon as a bonus at the end of each year he stays, up to 10 years. The healthcare system wants to invest a lump sum now in order to have enough money to cover the bonuses over the 10 year period. assume the healthcare system can earn 5% stated annual rate of return on its investment, compoinded semiannually (twice per year). what amount would the healthcare system need to invest now in order to have enough money to pay the annual bonus to the surgeon at the end of each of the next 10 years? Assume a large healthcare system just approved a 355,000 annual (per year) bonus to retain its top cardiac surgeon. Assume that $355,000 will be paid to the surgeon as a bonus at the end of each year he stays, up to 10 years. The healthcare system wants to invest a lump sum now in order to have enough money to cover the bonuses over the 10 year period. assume the healthcare system can earn 5% stated annual rate of return on its investment, compoinded semiannually (twice per year). what amount would the healthcare system need to invest now in order to have enough money to pay the annual bonus to the surgeon at the end of each of the next 10 years?

Explanation / Answer

Answer:

Effective rate= (1+0.05/2)^2-1=0.0506 or 5.06%

Lumsum to be invested now= (P/r)*(1-1/(1+r)^n)

where P=Annual Bonus

r=rate of retunr=5.06%

n= periods=10

Lumsum Value=(355000/0.0506)*(1-1/1.0506^10)=2733246

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

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