Business Finance
finance..............

Question Description

You are offered a contract with a signing bonus. If they offered you either $215,000 in cash or $2,000 a month for 15 years, guaranteed, which do you take (based strictly on the math)? Your safe rate of return is 7.5%.

Final Answer

Answer: Take the $2,000 monthly installments

Solution:

PV of an annuity = C*(1-(1+i/n)^(-n*t))/(i/n) = 2000*(1-(1+.075/12)^(-15*12))/(.075/12)

 = 2000*(1-1.00625^-180)/.00625 = $215,746.85 (this is larger than $215,000...so take this)

C = Cash flow per period
i = interest rate
n = number of payments per year

t = number of years

Alex Z (997)
New York University

Anonymous
The tutor managed to follow the requirements for my assignment and helped me understand the concepts on it.

Anonymous
The tutor was knowledgeable, will be using the service again.

Anonymous
Awesome quality of the tutor. They were helpful and accommodating given my needs.

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4

Brown University





1271 Tutors

California Institute of Technology




2131 Tutors

Carnegie Mellon University




982 Tutors

Columbia University





1256 Tutors

Dartmouth University





2113 Tutors

Emory University





2279 Tutors

Harvard University





599 Tutors

Massachusetts Institute of Technology



2319 Tutors

New York University





1645 Tutors

Notre Dam University





1911 Tutors

Oklahoma University





2122 Tutors

Pennsylvania State University





932 Tutors

Princeton University





1211 Tutors

Stanford University





983 Tutors

University of California





1282 Tutors

Oxford University





123 Tutors

Yale University





2325 Tutors