You Are Considering Two Work Contracts, Each of Which Lasts

Essay

You are considering two work contracts, each of which lasts for five years. The two contracts are summarized in the following table. $$\begin{array} { | c | c | c | } \hline \text { Year } & \begin{array} { c } \text { Contract } \\\text { One }\end{array} & \begin{array} { c } \text { Contract } \\\text { Two }\end{array} \\\hline 1 & \$ 25,000 & \$ 55,000 \\\hline 2 & \$ 35,000 & \$ 65,000 \\\hline 3 & \$ 45,000 & \$ 25,000 \\\hline 4 & \$ 55,000 & \$ 35,000 \\\hline 5 & \$ 65,000 & \$ 45,000 \\\hline\end{array}$$ Assume that you will be paid at the end of each year. Contract 1 includes a signing bonus of $5,000 to be paid at the beginning of year 1, whereas contract 2 does not include a signing bonus. If the interest rate is 5 percent, which is the better offer?