You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They
ID: 2808760 • 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 $75,000 per year for the next two years, or you can have $64,000 per year for the next two years, along with a $20,000 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))
You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They’ve offered you two different salary arrangements. You can have $75,000 per year for the next two years, or you can have $64,000 per year for the next two years, along with a $20,000 signing bonus today. The bonus is paid immediately, and the salary is paid in equal amounts at the end of each month.
Explanation / Answer
Since it is not mentioned I am assumming salary is paid annually at the end of year in both cases.
PV in case first case = 75000/1.1 +75000/1.1^2 = 130165.29
PV in second case = 20000+64000/1.1+64000/1.1^2 = 131074.38
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