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Chapter 12: Q. 96 (page 826)

You have just signed a 7-year professional football league contract with a beginning salary of \(2,000,000 per year. Management gives you the following options with regard to your salary over the 7 years.

1. A bonus of \)100,000 each year

2. An annual increase of 4.5% per year beginning after 1 year

3. An annual increase of $95,000 per year beginning after 1 year

Which option provides the most money over the 7-year

period? Which the least? Which would you choose? Why?

Short Answer

Expert verified

Option 2 provides more money

Step by step solution

01

Given information

1. A bonus of $100,000 each year

2. An annual increase of 4.5% per year beginning after 1 year

3. An annual increase of $95,000 per year beginning after 1 year

02

Calculate choice A

We get,

The amount amount becomes 7 salaries and 7 bonuses

Hence

Total=7(2100000)Total=14700000

03

Calculate for choice B

Here we have a=2000000 and r=1.045

We use the formula S7=a11-r71-r

We get

S7=a11-r71-rS7=2000000(1-1.04571-1.045)S7=16038303.58

In second choice we get $16038303.58

04

Calculate for part C

here a=2000000 and d= 95000

Also

S7=72(a1+a7)S7=3.5(a1+a7)

now

a7=a1+(6d)a7=2000000+570000a7=2570000

Therefore

S7=3.5(2000000+2570000)S7=15995000

05

Conclusion

Option 2 provides more money.

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