Question

Which of the following reward options is best in an employee's interests? a) Receive now $7,700. b) Receive $4,000 now and another $4,000 in two months. c) Receive three payments of $2,800 each in 30, 60 and 90 days

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Answer to a math question Which of the following reward options is best in an employee's interests? a) Receive now $7,700. b) Receive $4,000 now and another $4,000 in two months. c) Receive three payments of $2,800 each in 30, 60 and 90 days

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Sigrid
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116 Answers
To determine the best option for the employee, we need to compare the values of each option in terms of present value.

Let's assume the monthly interest rate is r.
For option a):
Present value = $7,700

For option b):
Present value = $4,000 + \frac{4,000}{(1+r)^2}

For option c):
Present value = \frac{2,800}{(1+r)^1} + \frac{2,800}{(1+r)^2} + \frac{2,800}{(1+r)^3}

To determine the value of r, we can compare options b) and c) using the present value calculations.

4,000 + \frac{4,000}{(1+r)^2} = \frac{2,800}{(1+r)^1} + \frac{2,800}{(1+r)^2} + \frac{2,800}{(1+r)^3}

Solving the equation will give us the monthly interest rate r. Once we have the interest rate, we can find the present value for each option and determine which option has the highest present value.

r \approx 0.0292

Calculating the present values:
For option a): $7,700
For option b): $8,108.57
For option c): $8,456.41

Therefore, the best reward option for the employee's interest is option c) to receive three payments of $2,800 each in 30, 60, and 90 days as it has the highest present value.

\boxed{\text{Answer: Option c)}}

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