You are approaching your 10-year anniversary of employment, and
the company your work for has promised a bonus of $20,000 in two
years’ time if you reach performance targets. In addition, the
company has promised you another bonus of $40,000 seven years from
today if your high standards of work performance continue. Interest
rates are currently 5% and will stay at this level for four years.
After four years, interest rates are expected to rise to 8%.
What is the present value of the promised bonuses?
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