Posted: December 18th, 2022
You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They’ve offered you two different salary arrangements. You can have $8,200 per month for the next two years, or you can have $6,900 per month for the next two years, along with a $37,000 signing bonus today. Assume the interest rate is 6 percent compounded monthly. If you take the first option, $8,200 per month for two years, what is the present value? What is the present value of the second option?
Suppose you are going to receive $17,500 per year for three years. The appropriate interest rate is 10 percent. Requirement 1: (a) What is the present value of the payments if they are in the form of an ordinary annuity (b) What is the present value if the payments are an annuity due? (c) Suppose you plan to invest the payments for three years. What is the future value if the payments are an ordinary annuity? (d) Suppose you plan to invest the payments for three years. What if the payments are an annuity due?
Mary is going to receive a 31-year annuity of $9,600. Nancy is going to receive a perpetuity of $9,600. Required: If the appropriate interest rate is 9 percent, how much more is Nancy’s cash flow worth?
What is the present value of $2,825 per year, at a discount rate of 7 percent, if the first payment is received 6 years from now and the last payment is received 22 years from now?
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