Youve just joined the investment banking firm of Dewey, Cheatum, and Howe. Theyv

Question

Youve just joined the investment banking firm of Dewey, Cheatum, and Howe. Theyve offered you two different salary arrangements. You can have $73,000 per year for the next two years, or you can have $62,000 per year for the next two years, along with a $18,000 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 10 percent compounded monthly, what is the PV for both the options? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

PV

Option 1 $

Option 2 $

Explanation / Answer

Option 1

Salary per month = 73,000/12=$6083.33

PV = 6083.33/(1+10%/12) + 6083.33/(1+10%/12)^2 + 6083.33/(1+10%/12)^3 ............ 6083.33/(1+10%/12)^24

Pv =$131,831.03

Option 2

Salary per month = 62,000/12=$5166.67

PV =18,000+ 5166.67/(1+10%/12) + 5166.67/(1+10%/12)^2 + 5166.67/(1+10%/12)^3 ............5166.67/(1+10%/12)^24

Pv =$129,966.08

PV is higher for Option1

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