An employee of Stenton Printing whose current annual salary is $41,000 has the option of taking an annual raise of 8%/year for the next 4 yr or a fixed annual raise of $1,200/year. Which option would be more profitable to him considering his total earnings over the 4-yr period?
A) Annual raise of $1,200 / year
B) Annual raise of 8% / year

Question

An employee of Stenton Printing whose current annual salary is $41,000 has the option of taking an annual raise of 8%/year for the next 4 yr or a fixed annual raise of $1,200/year. Which option would be more profitable to him considering his total earnings over the 4-yr period? ​ 
A) Annual raise of $1,200 / year
B) Annual raise of 8% / year

Quizplus · Accepted Answer

To compare the total earnings over the 4-year period for the two options, we can calculate the salary for each year and add them up.

Option A: Annual raise of $1,200/year
- Year 1 salary: $41,000 
- Year 2 salary: $42,200 ($41,000 + $1,200) 
- Year 3 salary: $43,400 ($42,200 + $1,200) 
- Year 4 salary: $44,600 ($43,400 + $1,200) 
- Total earnings over 4 years: $171,200

Option B: Annual raise of 8%/year
- Year 1 salary: $41,000
- Year 2 salary: $44,280 ($41,000 x 1.08)
- Year 3 salary: $47,845.44 ($44,280 x 1.08)
- Year 4 salary: $51,717.57 ($47,845.44 x 1.08)
- Total earnings over 4 years: $185,843.01

Therefore, Option B with an annual raise of 8%/year would be more profitable with a total earnings of $185,843.01 over the 4-year period.

An Employee of Stenton Printing Whose Current Annual Salary Is