Comparing Cash Flow Streams. You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They’ve
per month for the next two years, or you can have $5,400 per month for the next two years, along with a $25,000 signing bo
which do you prefer?
time
0 1 2 3
offer 1 6700 ….
offer 2 25000 5400
annual montly
interest 0.07 0.005833
time 2 24
PVA1 149,645 US$
PVA2 120,610 US$
Bonus2 25000
contract 1 149,645 US$ Accept
Contract 2 145,610 US$
,Cheatum, and Howe. They’ve offered you two different salary arrangements. You can have $6,700
ng with a $25,000 signing bonus today. If the interest rate is 7 percent compounded monthly,
, Annuity and Perpetuity Values. Mary is going to receive a 30-year annuity of $12,700. Nancy is going to receive a perpet
appropriate interest rate is 5.4 percent, how much more is Nancy’s cash flow worth?
Mary 1
Annuity Perpetuity Nancy 1
Mary Nancy
pmt 12700 12700
interest 0.054 0.054
nper 30 PV=PMT/r
PV 186,635 US$ $ 235,185
difference $ 48,550
per month for the next two years, or you can have $5,400 per month for the next two years, along with a $25,000 signing bo
which do you prefer?
time
0 1 2 3
offer 1 6700 ….
offer 2 25000 5400
annual montly
interest 0.07 0.005833
time 2 24
PVA1 149,645 US$
PVA2 120,610 US$
Bonus2 25000
contract 1 149,645 US$ Accept
Contract 2 145,610 US$
,Cheatum, and Howe. They’ve offered you two different salary arrangements. You can have $6,700
ng with a $25,000 signing bonus today. If the interest rate is 7 percent compounded monthly,
, Annuity and Perpetuity Values. Mary is going to receive a 30-year annuity of $12,700. Nancy is going to receive a perpet
appropriate interest rate is 5.4 percent, how much more is Nancy’s cash flow worth?
Mary 1
Annuity Perpetuity Nancy 1
Mary Nancy
pmt 12700 12700
interest 0.054 0.054
nper 30 PV=PMT/r
PV 186,635 US$ $ 235,185
difference $ 48,550
