You have just joined the investment advisory firm Skyhigh & Co They have offered you two very different salary arrangements. You can have $250,000 per year for the next five years; or $145,000 per year for the next five years, along with a $400,000 signing bonus today. If the interest rate is 6 per cent compounded quarterly, which do you prefer? For simplicity, assume the salaries are to be paid at the end of each year.

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To determine which salary arrangement is more favorable you can calculate the present value of each ... View the full answer