Question

If your starting salary were $40,000 and you received a 3% increase at the end of every year for 15 years, what will be the amount, in dollars, you will earn during your 16th year working there?

Answer 1

The salary during the 16th year will be US$ 62,318.70

Explanation:

Starting salary = US$ 40,000

Duration of the job contract = 15 years

Salary increase rate = 3% compounded annually

2. Let's find the future value of this starting salary after 15 years, using the following formula:

FV = PV * (1 + r) ⁿ

PV = Starting salary = US$ 40,000

number of periods (n) = 15 (15 years compounded annually)

Salary increase rate (r) = 3% = 0.03

Replacing with the real values, we have:

FV = 40,000 * (1 + 0.03) ¹⁵

FV = 40,000 * (1.03) ¹⁵

FV = 40,000 * 1.558

FV = US$ 62,318.70

The salary during the 16th year will be US$ 62,318.70