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 $90,000 per year for the next two years, or you can have $65,000 per year for the next two years, along with a $45,000 signing bonus today. The bonus is paid immediately, and the salary is paid at the end of each year. If the interest rate is 10 percent compounded monthly, which do you prefer?

Answer 1

<p style=";font-family:'Times New Roman';font-size:15px;color:black">Option 1: PV= 90000/(1+10%)^1+90000/(1+10%)^2=156198</p><p style=";font-family:'Times New Roman';font-size:15px;color:black">Option 2: PV= 65000/(1+10%)^1+65000/(1+10%)^2+45000=157809</p><p style=";font-family:'Times New Roman';font-size:15px"><span style="color:black">=> </span><span style="color:#E84C22">Choose option 2</span></p><p><br/></p>

Answer 2

Option 1: PV= 90000/(1+10%)^1+90000/(1+10%)^2=156198

Option 2: PV= 65000/(1+10%)^1+65000/(1+10%)^2+45000=157809

=> Choose option 2