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2 You face three alternative income streams: Offer A , income is $70K in perpetuity. In offer B you earn 60K in first year, then
2 You face three alternative income streams: Offer A , income is $70K in perpetuity. In offer B you earn 60K in first year, then salary increases at rate 9B = 5% per year for n= 10 , then salary stays constant (in other words, salary growth rate falls to zero in year n +1) Offer C pays you $55K in first k = 10 years. After that, salary increases at rate gc = 10% forever. (that is, in years k + 1, k + 2 ,..). The discount rate/interest rate: r = 15%. (a) Calculate PVs of all three salary streams. (b) For what rate 9B of salary increases in job B would you be indifferent between A and B? Give formula. (c) Assuming again that 9B = 5%, for what discount rate r would you be indifferent between A and B? Give formula. (d) For what discount rate e r would you be indifferent between A and C? Give formula. (e) Assume your personal income each year is taxed at linear rate 30%. Does that change your answers in (a), (b), (c), (d)? Explain briefly
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