You\'ve just joined the investment banking firm of Dewey, Cheatum, and Howe. The

Question

You've just joined the investment banking firm of Dewey, Cheatum, and Howe. They've offered you tow different salary arrangements. You can have $77,000 per year for the next two years, or you can have $66,000 per year for the next tow years, along with a $22,000 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 around your answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Option1.

PV=(77000/12){[1-(1+.08/12)^-24]/(.08/12)}

=6416.67{[1-(1+.006667)^-24]/.006667}

=6416.67(22.1105)

=$141876.06

Option 2.

PV=22000+(66000/12){[1-(1+.08/12)^-24]/(.08/12)}

=22000+5500{[1-(1+.006667)^-24]/.006667}

=22000+5500(22.1105)

=$143607.98

Option 2. Is better having more PV.

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