Question

In: Economics

The current interest rate is 12%. Which job should you choose to maximize your earnings?


You must select between two alternative summer jobs:

Job A will pay you $2000 at the beginning of June, but you have to work for eight weeks.

Job B will pay you $400 at the beginning of June and $205 each week for the next eight weeks. In all other respects, the jobs are comparable – either one will do.

The current interest rate is 12%. Which job should you choose to maximize your earnings?

A) Job A B) Job B

The answer was marked as Job B but I cannot figure out why?

Solutions

Expert Solution

ANSWER:

Lets calculate the present value for both jobs at the begining of june.

pv of job a = $2,000 (paid upfront)

pv of job b = $400 (paid upfront) + payment per week(p/a,i,n) = $400 + $205(p/a,12%/52,8) = $400 + $205 * 9.87 = $400 + $1,623.10 = $2,023.10

since the pv of job b is greater then that of job a therefore it will be chosen to maximize your earnings.


Related Solutions

You are offered $110,000 today or $320,000 in 10 years. assuming that you can earn 12 percent on your money, which should you choose.
You are offered $110,000 today or $320,000 in 10 years. assuming that you can earn 12 percent on your money, which should you choose. Provide all calculations.
If you are looking to maximize your return on equity, would you choose to use leverage...
If you are looking to maximize your return on equity, would you choose to use leverage (a loan) or not? Why?
You can choose between Machine A or B. Your annual interest rate is 9%. You need...
You can choose between Machine A or B. Your annual interest rate is 9%. You need a Machine for 6 years (required service period). Machine A costs $42,000 and lasts for 2 years. It has no salvage value, and costs an additional $15,000 each year to operate. Machine B costs $90,500 and lasts for 3 years. It has a salvage value of $20,000 and costs $8,000/year to operate. What is the Annual Cost of the lowest cost machine?
Dense text please Think of your current job, a previous job or the job that you...
Dense text please Think of your current job, a previous job or the job that you want tomorrow. figure out where you can find the cleanest data in order to figure out how your business should respond (depending on your particular business) and position itself. Where will you look? Why? How will you analyze it? how covid had impacted the medical business 500 words, please
Table 2 Scenario Current interest rate — U.S. Current interest rate - Japan Current exchange rate...
Table 2 Scenario Current interest rate — U.S. Current interest rate - Japan Current exchange rate Expected exchange rate in 1 year A 2% 4% ¥100 = $1 ¥103 = $1 B 3% 6% ¥100 = $1 ¥102 = $1 C 5% 2% ¥100 = $1 ¥97 = $1 D 4% 7% ¥100 = $1 ¥106 = $1 Suppose that you intend to invest $10,000 in one-year government bonds. You are looking for the highest return on your investment and...
Consider a typical Canadian mortgage for $750,000. Suppose that the current nominal interest rate is 12%...
Consider a typical Canadian mortgage for $750,000. Suppose that the current nominal interest rate is 12% and the maturity is set at 25 years. The rollover period is 3 years. a) Please find the semi-annual payment on this mortgage. b) Suppose the interest rates moves to 11% a day after the mortgage is issued. What is the market value of this mortgage? c) Suppose the nominal interest rate moves to 14% 3 years from now. What will be the new...
Preamble This assignment should be based on your current employer/business or a business with which you...
Preamble This assignment should be based on your current employer/business or a business with which you have had some recent exposure and with which you are familiar. Presenting your findings Your report should be presented in a management report format which includes an: Executive summary (make it brief, no more than 2 pages), Also Introduce the business entity in consideration, its history, milestones it has achieved in past, market share, industry it operates, industry analysis etc. Your report should incorporate...
“What should a firm do, maximize profit or maximize stakeholder value?” Your discussion, should include: -Well-structured...
“What should a firm do, maximize profit or maximize stakeholder value?” Your discussion, should include: -Well-structured arguments -Pertinent data -Case studies
how do you choose between a low interest rate and a rebate
how do you choose between a low interest rate and a rebate
Choose an issue/topic about Russia and the CIS that you think should be of interest to...
Choose an issue/topic about Russia and the CIS that you think should be of interest to the class. Locate a website that describes your topic of interest, such as economic issues, social issues, cultural issues, and environmental issues.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT