Question

Jose graduated in engineering 5 years ago. Hisemployer will give him a raise of $10,000 per yearif he passes the PE exam (Professional Engineer).(a) Over a career of 35 years, what is the presentworth of the raise if the interest rate is 8%

Answer 1

Answer:

$116,545.68

Explanation:

The first step is to find the future value of the annuity

The formula for calculating future value = A (B / r) B = [(1 + r)^n] - 1

[(1.08)^35 - 1 ] / 0.08 = 172.316804

172.316804 X $10,000 = $1,723,168.04

The second step is to calculate the present value

PV = FVx ( 1 + r)^-n

= $1,723,168.04 x(1.08)^-35 = $116,545.68