Sivamani is attending an interview for a job and the company gave two offers to him.

Offer A: ₹20,000 to start with followed by a guaranteed annual increase of 6% for the first 5 years.

Offer B: ₹22,000 to start with followed by a guaranteed annual increase of 3% for the first 5 years.

What is his salary in the 4th year with respect to the offers A and B?

Solution :

Offer A: ₹20,000 to start with followed by a guaranteed annual increase of 6% for the first 5 years.

a = 20000, r = 0.06 and n = 5

Starting salary = 20,000

Every year 6% of annual salary is increasing.

Starting salary = 20000

Second year salary = 20000 + 6% of 20000

= 20000(1 + 6%)

By continuing in this way, we get

4th year salary = 20000(1 + 6%)3

= 20000(1.06)3

= 22820

Offer B: ₹22,000 to start with followed by a guaranteed annual increase of 3% for the first 5 years.

a = 22000, r = 0.03 and n = 5

Starting salary = 22,000

Every year 3% of annual salary is increasing.

Starting salary = 22000

Second year salary = 22000 + 3% of 22000

= 22000(1 + 3%)

By continuing in this way, we get

4th year salary = 22000(1 + 3%)3

= 22000(1.03)3

= 24040