You have recently accepted a one-year employment term by a firm. The firm has gi

Question

You have recently accepted a one-year employment term by a firm. The firm has given you the option of receiving your salary as a lump sum value of $30,000 at the end of the year or as 12 monthly payments of $2,400 starting one month after you start work. If your relevant discount rate is 2 percent per month, then which salary options would you prefer? (Ignore taxes, risk, and consumption needs.) Choose the best answer. a. The lump sum payment, since it has the larger future value. b. Monthly payments, since you do not have to wait so long to receive your money. c. Either one, since they have the same present value. d. The lump sum payment, since it has the larger present value. e. Monthly payments, since it has the larger present value.

Explanation / Answer

. b. Monthly payments, since you do not have to wait so long to receive your money.

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