Ask Question
27 November, 14:53

Under the terms of his salary agreement, president Steve Walters has an option of receiving either an immediate bonus of $77,000, or a deferred bonus of $98,000 payable in 10 years.

Ignoring tax considerations and assuming a relevant interest rate of 4%, which form of settlement should Walters accept?

+3
Answers (1)
  1. 27 November, 17:05
    0
    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
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Under the terms of his salary agreement, president Steve Walters has an option of receiving either an immediate bonus of $77,000, or a ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers