Question

Mr. Robert Jones just accepted the $70,000 salary job with the Agricultural National Bank and has passed up another banking alternative with a $80,000 starting salary. Assuming the salary differential persists over his 40-year employment career; what is the annual difference of $10,000 worth now, using a 6% interest rate?

Answer 1

To find the present value of the annual difference of $10,000, we can use the formula for the present value of a future cash flow. Plugging in the values, we get the present value to be approximately $1,995.32.

Step-by-step explanation:

To find the present value of the annual difference of $10,000, we can use the formula for the present value of a future cash flow:

PV = CF / (1 + r)n

Where PV is the present value, CF is the cash flow, r is the interest rate, and n is the number of years. In this case, the cash flow is $10,000, the interest rate is 6% (0.06), and the number of years is 40. Plugging in these values, we get:

PV = 10000 / (1 + 0.06)40

Solving this equation gives us the present value of the annual difference of $10,000 to be approximately $1,995.32.