Question
You face three alternative income streams: Offer A , income is S7OK in perpetuity. In offer B you earn 60K in first year, then salary
You face three alternative income streams: Offer A , income is S7OK in perpetuity. In offer B you earn 60K in first year, then salary increases at rate gp = 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 4 = 10 years. After that, salary increases at rate c = 10% forever. (that is, in years k + 1, k + 2 ,.). The discount rate/interest rate: P = 15% (a) Calculate PVs of all three salty 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 bricfly.
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