I believe the 8 year contract which is increased by 5% each year will be $991.08. And the 4% will be $1,007.20. So she would want the 8 year contract with the 4% increase.
Compounding is a process where the interest is credited to the initial amount and interest, on the whole, is charged again. The athlete should take the second offer.
Compounding is a process where the interest is credited to the initial amount and interest, on the whole, is charged again. and this continues for t period of time.
It is given by the formula,
A = P(1+r)ⁿ
where A is the value after n period of time, P is the initial amount, and,
r is the rate of increment or decrement.
Given that a pro-athlete is offered an eight-year contract with a starting salary of $400,000. Therefore, the amount he will be getting initially is $400,000, while the rate at which the amount will be compounding for the next 7 years is 5%.
Now, the total amount that the pro-athlete will get in 8 years is,
Toal amount = $400,000(1+5%)⁷
= $400,000(1+0.05)⁷
= $400,000(1.4071)
= $562840.17
In the other offer for eight years, the starting salary will be $425,000. Therefore, the amount he will be getting initially is $425,000, while the rate at which the amount will be compounding for the next 7 years is 4%.
Now, the total amount that the pro-athlete will get in 8 years is,
Toal amount = $425,000(1+4%)⁷
= $425,000(1+0.04)⁷
= $425,000(1.3159)
= $559,271
Since the total amount that the athlete will get in the next 8 years is more for the second offer, the athlete should take the second offer.
Learn more about Compounding here:
https://brainly.com/question/13516179
#SPJ5
