Question

Assume your employer offers a bonus of $7200. The only catch is that you must wait 6 years to take possession of the money. If you can earn 6% on your savings, what is the minimum you would take today in order to match the bonus

Answer 1

The minimum would be the present value of the bonus, which is 5,075.72 dollars

Step-by-step explanation:

we have to discount the 7,200 dollar bonus at 6% discount rate for 6 years to get the present value of the bonus:

`(Maturity)/((1 + rate)^(time) ) = PV`

Maturity 7,200

time 6 years

rate 6% = 6/100 = 0.06

`(7200)/((1 + 0.06)^(6) ) = PV`

PV $ 5,075.7159