Your first job pays your $45,000 first year, $48,000 second year, $49,000 third year and $50,000...

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Your first job pays your $45,000 first year, $48,000 second year, $49,000 third year and $50,000...

Your first job pays your $45,000 first year, $48,000 second year, $49,000 third year and $50,000 fourth year. Then you switch to another job and make $54,000 in the first year. Your pay increases by 5% for the next six years (11 years total).

What is your salary in the 11th year? The Government tells you that the inflation is on average 2.5%.

What is the Present Value (PV) of the salary you make in the 11th year?

What is the PV if the inflation is 6%?

business finance

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Answer 1

Answer #1

salary in year 11

Future value = present value*(1+ growth rate)^time

Future value = 54000*(1+0.05)^6

Future value = 72365.16

Present value case 1

Future value = present value*(1+ inflation)^time

72365.16 = Present value*(1+0.025)^11

Present value = 55152.729

Present value case 2

Future value = present value*(1+ inflation)^time

72365.16 = Present value*(1+0.06)^11

Present value = 38121.064

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Answer 2

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