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In: Finance

You've just been hired at a new job. You expect to work there for 4 years....

You've just been hired at a new job. You expect to work there for 4 years. Your boss offers you a hiring bonus of either $3,999 today, or an additional $46 per month, starting next month, on your salary. If your investments earn 3.62% 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.

Solutions

Expert Solution

Present value of bonus offered today will be equal to $3,999.

Present value additional $46 per month, can be known using present value of annuity formula;

present value of annuity = A*[1-(1+r)^(-n)]/r

here,

r=3.62% per year =>3.62%*1/12 =>0.301667% per month.

=>0.00301667.

n = 4 years * 12 months

=>48.

$46*[1-(1.00301667)^(-48)]/0.00301667

=>$46* [0.3146162/0.00301667]

=>$46*44.6241054

=>$2,052.71.

SInce the present of what is paid today is greater than the present value of $46 per month given for 4 yeears.

It can be said that we gain ($3,999 - 2052.71)=>$1,946.29 by accepting the cash bonus today.

jeff jeffy answered 2 years ago
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