Question

In: Finance

You are offered two jobs. Job 1 initially pays $25,000 / year, and your salary will...

You are offered two jobs. Job 1 initially pays $25,000 / year, and your salary will grow annually at 10%. Job 2 pays $22,000 / year, but your salary will grow at 12%. After 10 years, which job pays the higher salary?

****** (Answers MUST be rounded to the nearest hundredth .)******
a. FV(Job 1)= $
b. FV ( 2) = $
c. Which one is better?

Solutions

Expert Solution

The concept tested in the question is Time Value of Money.

Solution:

a) FV(Job 1)= Initial Amount * FVIF (r%, n)        [where FVIF is the future value interest factor at r rate for n period]

                    = 25000 * 2.70704

                    = $ 67676

b. FV ( 2) = Initial Amount * FVIF (r%, n)

                    = 22000 * 3.30039

                    = $ 72609

c. Which one is better?

Job 2 is better since after 10 years salary amount is higher in the case of Job 2.

Hope you understand the solution.

jeff jeffy answered 2 years ago
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