Question

Suppose you begin a job with an annual salary of $32,900. Each year you are assured of a 5.5% raise. What its the total amount that you can earn in 15 years? A) $34,815 B) $51,751 C) $737,245 D) $1,682,920

Answer 1

Answer: The correct option is C

Step-by-step explanation:

You begin a job with an annual salary of $32,900

Each year you are assured of a 5.5%. If you get the same amount each year, that is a 100% payment. It is neither reducing nor increasing. But with an increase of 5.5% each year, it means you are getting (100+5.5)% each year. This equals 105.5%. So for each year, you get 105.5% of the previous year.

This is a geometric progression. To determine the total amount that you can earn in 15 years, we will find the sum of 15 terms, S15 of the series. The formula for sum of the nth term of a geometric progression is expressed as

Sn = [a(r^n - 1)] / r - 1

Where

Sn = sum of the nth terms of the series

a = the first term(salary of the first year

r = common ratio

n = number of years.

From the question,

a = 32900

n = 15

r = 105.5/100 = 1.055

S15 = [32900(1.055^15 - 1)] / 1.055 - 1

S15 = [32900(2.23247649224 - 1)] / 0.055

S15 = [32900 × 1.23247649224] / 0.055

S15 = $737245