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 $74,000 per year for the next two years, or you can have $63,000 per year for the next two years, along with a $19,000 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 8 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.)

Answer 1

Salary per month :

Option 1 : 74000/12 = 6166.67 per month

option 2 : 63000/12 = 5250

monthly rate : 8/12 = .66667%

NUmber of months : 2*12 =24

Option 1 )Present value =PVA .66667%,24 *monthly salary

              = 22.11053*6166.67

               = $ 136,348.34

option 2)Present value =bonus today+PVA .66667%,24 *monthly salary

              = 19000+ [22.11053*5250]

              = 19000 + 116080.28

                 = $ 135080.28