A bonus package pays an employee $1,000 at the end of the firstyear, $1,500 at...

A bonus package pays an employee $1,000 at the end of the first year, $1,500 at the end of the second year, $2,000 at the end of the third year, and so on, continuing to increase by $500 every year for the first nine years of employment. What is the present value today of the bonus package at 9% interest?

Expert Solution

- Bonus pcakage pays an employee $1,000 at the end of 1st year, $1500 at the end of second year and this goes on for the first 9 years.

Calculating the Present Value of Bonus Package today:-

Year	Bonus Package increases $500 every year	Bonus Package's Cash Flow ($)	PV Factor @9%	Present Value of Bonus Package's Cash Flow ($)
1	$1,000	1,000.00	0.91743	917.431
2	$1,000 + $500 = $1500	1,500.00	0.84168	1,262.520
3	$1,500 + $500 = $2,000	2,000.00	0.77218	1,544.367
4	$2,000 + $500 = $2,500	2,500.00	0.70843	1,771.063
5	$2,500 + $500 = $3,000	3,000.00	0.64993	1,949.794
6	$3,000 + $500 = $3,500	3,500.00	0.59627	2,086.936
7	$3,500 + $500 = $4,000	4,000.00	0.54703	2,188.137
8	$4,000 + $500 = $4,500	4,500.00	0.50187	2,258.398
9	$4,500 + $500 = $5,000	5,000.00	0.46043	2,302.139
				16,280.785

So, the Present Value of Bonus Package today is $16280.79

jeff jeffy answered 2 years ago

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