Assistant Humanities Professor

Assumptions:

$$ Your salary is $$55,620$

$$ You have no outside sources of income

$$ You have deductions of $$11,120$

$$ Your salary in $2006$ is expected to be at least as much as your salary in $2001$

$$ Both you and Stanford would make a pretax return of $10\%$ on any investment

Questions:

$1.$ Assuming all assumptions hold, Stanford will be indifferent between paying you $$1$ of salary in

$2001$ and $X of deferred compensation in $2006.$ Calculate X$.$

$2.$ Assuming all assumptions hold, you will be indifferent between $$1$ of salary in $2001$ and $Y of

deferred compensation in $2006.$ Calculate Y$.$

$3.$ If you opted for salary instead of deferred compensation and invested your salary in a corporate

bond, what annualized after$-$tax rate of return would the bond have to earn for you to be indifferent

between this option and the $X you calculated in Question #$1.$

$4.$ What nontax factors affect your decision?