Youve just joined the investment banking firm of Dewey, Cheatum, and Howe. Theyv
ID: 2661107 • Letter: Y
Question
Youve just joined the investment banking firm of Dewey, Cheatum, and Howe. Theyve offered you two different salary arrangements. You can have $8,500 per month for the next three years, or you can have $7,200 per month for the next three years, along with a $38,500 signing bonus today. Assume the interest rate is 8 percent compounded monthly.
If you take the first option, $8,500 per month for three years, what is the present value?
What is the present value of the second option?
Youve just joined the investment banking firm of Dewey, Cheatum, and Howe. Theyve offered you two different salary arrangements. You can have $8,500 per month for the next three years, or you can have $7,200 per month for the next three years, along with a $38,500 signing bonus today. Assume the interest rate is 8 percent compounded monthly.
Explanation / Answer
monthly rate = 8/12 = 0.667 %
number of periods = 12*3 = 36
1)
PV = 8500*(P/A, 0.667%, 36) = 8500*31.909 = $271,227
2)
PV = 38500 + 7200*(P/A, 0.667%, 36) = 38500 + 7200*31.909 = $268,245
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