Assume that you start with $900 per month healthcare increase and add five percent(5%) per year for the two (2) remaining years of a three year contract. Show the cash value and roll-up value of the increase
To calculate the cash value of the healthcare increase, we need to calculate the increase amount for each year and add them up.
Given:
Initial increase per month: $900
Annual increase rate: 5%
Duration: 2 years
First, let's calculate the increase amount for each year:
Year 1:
Increase = Initial increase per month = $900
Year 2:
Increase = Initial increase per month * Annual increase rate
= $900 * 5% = $45
Year 3:
No increase since it is the last year.
Now, let's calculate the cash value of the increase by summing up the increase amounts for each year:
Cash value = Increase in Year 1 + Increase in Year 2 + Increase in Year 3
= $900 + $45 + $0
= $945
So, the cash value of the healthcare increase is $945.
To calculate the roll-up value of the increase, we need to calculate the cumulative increase amount for each year and add them up.
Roll-up value calculation:
Year 1: Cumulative increase = Increase in Year 1 = $900
Year 2: Cumulative increase = Cumulative increase in Year 1 + Increase in Year 2
= $900 + $45
= $945
Year 3: Cumulative increase = Cumulative increase in Year 2 + Increase in Year 3
= $945 + $0
= $945
So, the roll-up value of the increase is also $945.