Question

Marcus just graduated college and started a new job that pays $60,000 per year. His boss has given him four options for how to receive his paycheck. If his required return is 5% per year, which option should Marcus choose?

A semi-monthly payment of $2,500 (24 total payments per year)

A quarterly payment of $15,000 (4 total payments per year)

An annual payment of $60,000 (1 total payment per year)

A monthly payment of $5,000 (12 total payments per year)

Answer 1

Based on the given data, pls find below workings on the salary pay with different options:

Future value of these payments at regular periodic compounding are calculated; It is assumed that the salary is paid at the end of the period;

Based on the below workings, the option with semi-monthly payments shall benefit more than that of the any other option; Hence, Marcus should opt for Option of taking $ 2500 per semi-monthly period to gain maximum benefit at the given rate of interest of 5%;