Question

A bonus package pays an employee $800 at the end of the first year, $1800 at the end of the second year, $2800 at the end of the third year, and so on...continuing to increase by $1000 every year for the first nine (9) years of employment. What is the approximate present value today of the bonus package at 6% interest?

Answer 1

Answer:$30,057.46

Step-by-step explanation:

First year=$800

Second year=$1800

Third year=$2800

Fourth year=$3800

Fifth Year=$4800

Sixth year=$5800

Seventh year=$6800

Eight year=$7800

Ninth year=$8800

Present value (PV)= C/(1+i)^n

Where C= Amount of money to be discounted

n=Number of periods

I= Interest rate

First year (PV)= $800/(1+0.06)^1

=$754.72

Second year (PV)= $1800/(1+0.06)^2

=$1800/1.124

=$1601.42

Third year (PV)= $2800/(1+0.06)^3

=$2800/1.191

=$2390.97

Fourth year (PV)= $3800/(1+0.06)^4

=$3800/1.263

=$3008.71

Fifth Year (PV)=$4800/(1+0.06)^5

=$4800/1.338

=$3587.44

Sixth year (PV)= $5800/(1+0.06)^6

=$5800/1.419

=$4087.39

Seventh year (PV)=$6800/(1+0.06)^7

=$6800/1.504

=$4521.28

Eight year (PV)=$7800/(1+0.06)^8

=$7800/1.594

=$4893.35

Ninth year (PV)=$8800/(1+0.06)^9

=$8800/1.689

=$5210.18

Total PV=$754.72+$1601.42+$2390.97+$3008.71+$3587.44+$4087.39+$4521.28+$4893.35+$5210.18

=$30,057.46

Answer 2

The present value for this bonus is $30,018.13

Step-by-step explanation:

pv n i FV

754.72 1 6% 800

1601.99 2 1800

2350.93 3 2800

3009.96 4 3800

3586.84 5 4800

4088.77 6 5800

4522.39 7 6800

4893.82 8 7800

5208.71 9 8800

30018.13