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A dean at NYU has a guaranteed salary of $120, 000 at the end of each year for the next five years at which point they are scheduled to retire. The school would like the dean to retire now. How much should the school offer today? Suppose current interest rates are 1.5% at all maturities.

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Zviko

Answer:

the school should offer $573,917.40 today.

Explanation:

The amount to be offered today is known as the Present Value and is calculated as :

Pmt =  $120, 000

Fv = $0

P/yr = 1

n = 5

r = 1.5%

Pv = ?

Using a Financial Calculator, the amount that the school should offer today, PV is $573,917.40.

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