Answer:
Instructions are listed below.
Explanation:
Giving the following information:
Option 1:
You can have $72,000 per year for the next two years
Option 2:
You can have $61,000 per year for the next two years, along with a $17,000 signing bonus today. The bonus is paid immediately, and the salary is paid in equal amounts at the end of each month.
The interest rate is 9 percent compounded monthly.
To calculate the present value, we need to use the following formula:
PV= FV/(1+i)^n
First, we need to calculate the final value on both options:
FV= PV*(1+i)^n
For each year
Option 1:
i= 0.09/12= 0.0075
n= 12
Year 1= 72,000*1.0075^24= 86,141.77
Year 2= 72,000*1.0075^12= 78,754.09
Total= 164,895.86
PV= 164,895.86/1.0075^24= 137,825.14
Option 2:
Year 1= 61,000*1.0075^24= 72,981.23
Year 2= 61,000*1.0075^12= 66,722.22
Total= 139,703.45
PV= 139,703.45/ 1.0075^24= 116,768.53 + 17,000= 133,768.53
Option 1 is more profitable.
