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In: Finance

You've just been hired at a new job. You expect to work there for 3 years....

You've just been hired at a new job. You expect to work there for 3 years. Your boss offers you a hiring bonus of either $2,071 today, or an additional $28 per month, starting next month, on your salary. If your investments earn 4.05% APR (compounded monthly), how much would you gain or lose by taking the cash-bonus today? If you would lose money, indicate your answer with a negative number.

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Expert Solution

PV of Annuity of monthly salary = Monthly Salary * [{1 - (1 + r)-n} / r]

= $28 * [{1 - (1 + 0.0405/12)-(3*12)} / (0.0405/12)]

= $28 * [0.1142 / 0.0034]

= $28 * 33.8453 = $947.67

Gain by taking the cash-bonus today = Cash Bonus today - PV of Annuity of monthly salary

= $2,071 - $947.67 = $1,123.33

jeff jeffy answered 2 years ago
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