How do you set up this sort of problems?

You are offered a job with a salary at 30000 the first year. Each succesive year you are garanteed a 5% cost of living increase and up to 2000 possible merit increase. what is the maximum amount you could earn during the third year at this job?

Maybe you could do 5% of 30, 000 first : 1,500 and take the 5% increase and subtract that from 30, 000: 28,500

Do that again for year 3: 5% of 28,500 and get 1425 substract from 28,500 and get over 27,000

Then I guess you add the 4000 merit increase that accumulate after the 2 years and get around 31,000.

I hope I am right

Maybe you could do 5% of 30, 000 first : 1,500 and take the 5% increase and subtract that from 30, 000: 28,500

Do that again for year 3: 5% of 28,500 and get 1425 substract from 28,500 and get over 27,000

Then I guess you add the 4000 merit increase that accumulate after the 2 years and get around 31,000.

I hope I am right


Actually I went with the regular % problem set ups, however answer choices are werid: they are:

A) 37000
b) 37175
C) 37400
D)39600
E)40600

How do you set up this sort of problems?

You are offered a job with a salary at 30000 the first year. Each succesive year you are garanteed a 5% cost of living increase and up to 2000 possible merit increase. what is the maximum amount you could earn during the third year at this job?

First year: 30,000
Second year: 1.05(30,000) + 2,000 = 33,500
Third year: 1.05(33,500) + 2,000 = 37,175

Choice B.

How do you set up this sort of problems?

You are offered a job with a salary at 30000 the first year. Each succesive year you are garanteed a 5% cost of living increase and up to 2000 possible merit increase. what is the maximum amount you could earn during the third year at this job?
got the same answer as streetwolf

got the same answer as streetwolf


You both Could you please explain how did you set it up??/

got the same answer as streetwolf

I subtracted 5 % instead of adding 5 %. I originally thought that 5% subtracted would have been appropiate because the cost of living goes up 5 %, meaning that you pay an extra 5 % which comes away from the 30, 000

First year: 30,000
Second year: 1.05(30,000) + 2,000 = 33,500
Third year: 1.05(33,500) + 2,000 = 37,175

Choice B.


Could you please explain the set up. I thought we should get the 5% of 30000 and ...
How did you get 1.05? did you add 5 to 100? I guess I don't have a clear undersatnding of what the qs is asking.

You both Could you please explain how did you set it up??/

Look at my post...

Cost of living goes up so the employer says he'll always account for that with a salary increase of 5% each year. But on top of that, the employee could get up to $2,000 for doing a good job. The problem wants the maximum salary after 3 years so we assume the employee gets all of the $2,000 each year. Just remember that your salary for year 1 is $30,000.

Oh and I use 1.05 as a shortcut for adding a percent of a number to itself. If you wanted to pay 6% sales tax on an item that costs $100 you could either do 0.06(100) = 6 and then 100+6=106 or you could do 1.06(100) = 106.

In a nutshell you have 0.06(100) + 100 which is what I just did. But you can factor out the 100 and get 100(0.06 + 1) = 100(1.06).

You both Could you please explain how did you set it up??/


You know your first year salary is 30,000

For the succesive year (year 2), there is a 5% jump: 5% of 30,000 is 1, 500 and add that increase to 30,000 and get 31,500

For the second successive year (year 3) there is another 5% jump. 5% of 31,500 is 1,575 and add that to 31,500 to get around 33, 075 to find out what you'll make after year 3 with a 5% increase

For the two successive years you get 4000 or (2000+2000) for the merit increase and add that to the 33, 075 you accumulated after year 3

You both Could you please explain how did you set it up??/
the first year =starting salary =30,000
second year = salary (30,000) + merit (2000) + 5% increase from last year [(0.5)*(30,000)]=33,500
Third year = salary from previous year (33,500)+ merit (2000) +5% increase from last year [(0.5)*(33,500)]=37,175

note streetwolf multiplied by 1.05 which is the same as adding salary to 5% of it

You know your first year salary is 30,000

For the succesive year (year 2), there is a 5% jump: 5% of 30,000 is 1, 500 and add that increase to 30,000 and get 31,500

For the second successive year (year 3) there is another 5% jump. 5% of 31,500 is 1,575 and add that to 31,500 to get around 33, 075 to find out what you'll make after year 3 with a 5% increase

For the two successive years you get 4000 or (2000+2000) for the merit increase and add that to the 33, 075 you accumulated after year 3

No you have to add 2000 each year, not in one lump sum at the end. Otherwise the first 2000 doesn't factor into the second 5% salary increase.

No you have to add 2000 each year, not in one lump sum at the end. Otherwise the first 2000 doesn't factor into the second 5% salary increase.

I thought that you could have added the 2000 and the 2000 anywhere and it would add up and not affect the answer depending on where you add it. I also thought that the 2000 merit should be separate from the 5 % increase

Well you should notice that our answers are slightly different.

I am studying QR right now also... Where are you pulling these Q's from? This is a corporate finance question! I haven't come across any of these in my review.... but perhaps I should be reviewing this type of q?

I thought that you could have added the 2000 and the 2000 anywhere and it would add up and not affect the answer depending on where you add it. I also thought that the 2000 merit should be separate from the 5 % increase

Where you add the 2,000 makes a big difference; if you didn't add the 2,000 until after the 3rd year, you would have been adding 5% of 31,500 instead of 33,500 (which is 31,500 + 2,000, which is correct).

Will they ask us such time consuming questions?? I mean I've read other posts, but this problem took me 7 minutes to solve!! I got the right answer but if this happend on the exam I'm screwed!!!

First year: 30,000
Second year: 1.05(30,000) + 2,000 = 33,500
Third year: 1.05(33,500) + 2,000 = 37,175

Choice B.

good job

Will they ask us such time consuming questions?? I mean I've read other posts, but this problem took me 7 minutes to solve!! I got the right answer but if this happend on the exam I'm screwed!!!

This really isn't time consuming. If you can understand what the question wants, it should only take time to multiply numbers. I'd say one minute.

This really isn't time consuming. If you can understand what the question wants, it should only take time to multiply numbers. I'd say one minute.

I agree that this problem shouldnt be that time consuming either. But hey, you do have a 28 in QR so I think most others will probably take considerably longer than you to solve the problem.

If it shows up in QR, this one is probably one of the harder ones...

I agree that this problem shouldnt be that time consuming either. But hey, you do have a 28 in QR so I think most others will probably take considerably longer than you to solve the problem.

If it shows up in QR, this one is probably one of the harder ones...

It's good to know that I'm not the only one who finds it a little time consuming + hard!!

Thanks!!