You have a choice between two 3-year salary packages. Package 1 will pay you a salary...

You have a choice between two 3-year salary packages.

Package 1 will pay you a salary of $4,200 per month for three years. If you complete the three-year contract, you will receive an additional bonus of $4,000 at the end of year 3.

Package 2 will pay a salary of $4,000 per month for three years, with a signing bonus today of $8,000.

If the discount rate is 6% compounded monthly, what is the value of each salary package?

Solutions

Expert Solution

Package 1

Month	Salary	Bonus	Total Remuneration	Discount Factor @0.5% Per Month	Present Value
1	4200.00	0.00	4200.00	0.995	4179.10
2	4200.00	0.00	4200.00	0.990	4158.31
3	4200.00	0.00	4200.00	0.985	4137.62
4	4200.00	0.00	4200.00	0.980	4117.04
5	4200.00	0.00	4200.00	0.975	4096.56
6	4200.00	0.00	4200.00	0.971	4076.18
7	4200.00	0.00	4200.00	0.966	4055.90
8	4200.00	0.00	4200.00	0.961	4035.72
9	4200.00	0.00	4200.00	0.956	4015.64
10	4200.00	0.00	4200.00	0.951	3995.66
11	4200.00	0.00	4200.00	0.947	3975.78
12	4200.00	0.00	4200.00	0.942	3956.00
13	4200.00	0.00	4200.00	0.937	3936.32
14	4200.00	0.00	4200.00	0.933	3916.74
15	4200.00	0.00	4200.00	0.928	3897.25
16	4200.00	0.00	4200.00	0.923	3877.86
17	4200.00	0.00	4200.00	0.919	3858.57
18	4200.00	0.00	4200.00	0.914	3839.37
19	4200.00	0.00	4200.00	0.910	3820.27
20	4200.00	0.00	4200.00	0.905	3801.26
21	4200.00	0.00	4200.00	0.901	3782.35
22	4200.00	0.00	4200.00	0.896	3763.53
23	4200.00	0.00	4200.00	0.892	3744.81
24	4200.00	0.00	4200.00	0.887	3726.18
25	4200.00	0.00	4200.00	0.883	3707.64
26	4200.00	0.00	4200.00	0.878	3689.20
27	4200.00	0.00	4200.00	0.874	3670.84
28	4200.00	0.00	4200.00	0.870	3652.58
29	4200.00	0.00	4200.00	0.865	3634.41
30	4200.00	0.00	4200.00	0.861	3616.32
31	4200.00	0.00	4200.00	0.857	3598.33
32	4200.00	0.00	4200.00	0.852	3580.43
33	4200.00	0.00	4200.00	0.848	3562.62
34	4200.00	0.00	4200.00	0.844	3544.89
35	4200.00	0.00	4200.00	0.840	3527.26
36	4200.00	4000.00	8200.00	0.836	6852.29

				Value Of Package	141400.85	$

Package 2

Month	Salary	Bonus	Total Remuneration	Discount Factor @0.5% Per Month	Present Value
0	0.00	8000.00	8000.00	1.000	8000.00
1	4000.00	0.00	4000.00	0.995	3980.10
2	4000.00	0.00	4000.00	0.990	3960.30
3	4000.00	0.00	4000.00	0.985	3940.60
4	4000.00	0.00	4000.00	0.980	3920.99
5	4000.00	0.00	4000.00	0.975	3901.48
6	4000.00	0.00	4000.00	0.971	3882.07
7	4000.00	0.00	4000.00	0.966	3862.76
8	4000.00	0.00	4000.00	0.961	3843.54
9	4000.00	0.00	4000.00	0.956	3824.42
10	4000.00	0.00	4000.00	0.951	3805.39
11	4000.00	0.00	4000.00	0.947	3786.46
12	4000.00	0.00	4000.00	0.942	3767.62
13	4000.00	0.00	4000.00	0.937	3748.88
14	4000.00	0.00	4000.00	0.933	3730.23
15	4000.00	0.00	4000.00	0.928	3711.67
16	4000.00	0.00	4000.00	0.923	3693.20
17	4000.00	0.00	4000.00	0.919	3674.83
18	4000.00	0.00	4000.00	0.914	3656.54
19	4000.00	0.00	4000.00	0.910	3638.35
20	4000.00	0.00	4000.00	0.905	3620.25
21	4000.00	0.00	4000.00	0.901	3602.24
22	4000.00	0.00	4000.00	0.896	3584.32
23	4000.00	0.00	4000.00	0.892	3566.49
24	4000.00	0.00	4000.00	0.887	3548.74
25	4000.00	0.00	4000.00	0.883	3531.09
26	4000.00	0.00	4000.00	0.878	3513.52
27	4000.00	0.00	4000.00	0.874	3496.04
28	4000.00	0.00	4000.00	0.870	3478.65
29	4000.00	0.00	4000.00	0.865	3461.34
30	4000.00	0.00	4000.00	0.861	3444.12
31	4000.00	0.00	4000.00	0.857	3426.98
32	4000.00	0.00	4000.00	0.852	3409.93
33	4000.00	0.00	4000.00	0.848	3392.97
34	4000.00	0.00	4000.00	0.844	3376.09
35	4000.00	0.00	4000.00	0.840	3359.29
36	4000.00	3000.00	7000.00	0.836	5849.51

			Value Of Package	141991.00	$

jeff jeffy answered 1 year ago

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