Problem:
You've just joined the investment banking firm of Dewey, Cheatum, and Howe. They've offered you two different salary arrangements. You can have $193,000 per year for the next two years, or you can have $75,000 per year for the next two years, along with a $40,000 signing bonus today. The bonus is paid immediately, and the salary is paid at the end of each year.
Required:
Question 1: If the interest rate is 9 percent compounded monthly, what is the present value of the first arrangement?
Question 2: If the interest rate is 9 percent compounded monthly, what is the present value of the second arrangement?
Note: Please show how to work it out.