A famous quarterback just signed a contract for $8 million, providing $2.7 milli

Question

A famous quarterback just signed a contract for $8 million, providing $2.7 million a year for 4 years. A less famous receiver signed a contract for $7.0 million, providing $3 million now and $22 million a year for 4 years. The interest rate is 8% a. What is the PV of the quarterback's contract? (Do not round Intermedlate calculetions. Enter your answer In millions rounded to i2 declmal places.) 3 Answer is complete but not entirely correct. 24.02million b. What is the PV of the receiver's contract? (Do not round Intermedilate calculations. Enter your answer In milililons rounded to 2 decimal places.) Present l lemon? value e. Who is better paid? O Quarterback e Receiver

Explanation / Answer

PV of quarterback contract:

PV = 2,700,000 * [ 1 - 1 / ( 1 + 0.08)4]] / 0.08

PV = 2,700,000 * 3.312127

PV = $8,942,742.468 or 8.9 million

PV of receiver's contract

PV = 3,000,000 + 2,200,000 * [ 1 - 1 / ( 1 + 0.08)4]] / 0.08

PV = 3,000,000 + 2,200,000 * 3.312127

PV = 3,000,000 + 7,286,679.048

PV = 10,286,679.05 or 10.29 million

receiver is better paid

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