Answer:
$66,205 deferred bonus
$77,000 immediate bonus
Explanation:
$98,000 discounted at 4% for 10 years
=$98,000 x 0.67556= $66,205
Present value of deferred bonus $66,205
Walters has an option of receiving either an immediate bonus of $77,000, or a deferred bonus of $66,205 payable in 10 years
Therefore Walter should accept the bonus of $77,000 now.
Answer:
Immediate bonus of $77,000
Explanation:
Given the following
Immediate bonus = $77,000
Differed bonus = $98,000
Rate = 4%
Duration = 10
$66,205 deferred bonus
$77,000 immediate bonus
Calculating the differed bonus
We have
=$98,000 x 0.67556= $66,205
Present value of deferred bonus
= $66,205
He has a choice of collecting either an immediate bonus of $77,000, or collect a deferred bonus of $66,205 payable in 10 years
The best option for Walters is to collect an immediate bonus now
