Finance Question

[playerfl]

I'm posting this here because it is a math problem.

Scenario: You work for a computer company, and they offer to pay you if you pass a certification test. They offer to either pay you an immediate $1,000 one time bonus upon passing the test, or to give you an immediate raise of $500/year. Assume biweekly pay periods and you just got paid.

which option provides the most income after 1 year ? 1.5 years ? 2 years ? 2.5 years ? 3 years ?

[TomCollins]

Either this question is rediculously simple (2 years or more provides more for the raise), or you didn't give us enough information (interest rate for the time value of money).

So my question is, are you a) retarded, or b) not very clear.

[playerfl]

i'm posting this to see how many different answers i get, because i got arguments from my co-workers about it.

I also forgot the actual formula.

[playerfl]

and yes, include interest and inflation.

[cardcounter0]

You are going to get a raise in a year or two. If the company gives raises in form of say 5% of current salary, then you will be getting a bigger raise if you take the $500 raise, and then a future raise will compound that, etc.

A $1000 bonus probably won't be factored in like that in future pay raises.

[playerfl]

yes, this is the situation.

so, including that into the calculations along with interest rates and inflation, what is the formula ?

[cardcounter0]

The formula is how long are you planning on staying at your present job? The $500 a year, year after year, compounded with raises is much better.

The $1000 instant bonus is 100% better if you are leaving your job within the next year.

Present Value/Future Value type calculations can be found in Excel spreadsheet under financial functions. Look in the help file they have formulas and descriptions. BUT THESE ARE PRETTY MUCH WORTHLESS. The current interest rate is diddly squat, so there is very little effect on small amounts for relatively short periods.

[SossMan]

the TVM is so little on an amount that small over a short period of time that it's close enought to just say anything over 2 years is better to have the $500 / year.

However, $1000 right now is pretty nice!! whoo hoo, strippers and beer!!