You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They
ID: 2723898 • Letter: Y
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 $79,000 per year for the next two years, or you can have $68,000 per year for the next two years, along with a $24,000 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 9 percent compounded monthly, what is the PV for both the options?
(Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
(Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Explanation / Answer
Calculation of the Present Values Option 1 Present value 79000/(1.09)+79000/(1.09)^2 79000*.917+79000*.842 72477.06+66492.72 $138,969.80 Option 2 Present Value 24000+68000/(1.09)+68000/(1.09)^2 24000+62385.32+57234.24 $143,619.60 Option 2 is better
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