Q4: LeJames Bond is considering foregoing his senior year at UW-Badgerville and
ID: 2615356 • Letter: Q
Question
Q4: LeJames Bond is considering foregoing his senior year at UW-Badgerville and declaring himself eligible for the NBA draft. He anticipates a salary of $500,000 i declares early, and estimates that if he stays for his senior year of college, his rook salary would rise to $600,000 (because of additional experience and skil development during that extra college year). He is also aware of the NBA's discussi about a rookie salary cap, which would occur with probability % and be set at His opportunity cost rate of return (essentially his discount rate here) is8 What should LeJames do? [Note that we are ignoring any other future salary considerations, we are only comparing first year salaries] O He should declare early for the NBA draft O He should stay at UW-Badgerville for his senior year and enter the NBA draft after that. O He will be indifferent between the two choices. O Not enough information to tel D | Question 26 1.5 pts Q5: Over time, we've seen a dramatic reduction in the number of cities submitting final bids to host the Olympic games. Which of the following might NOT explain that development? 0 over the last three Olympic cycles (winter & summer), we've seen solid evidence of the Winner's Curse in practice.Explanation / Answer
Q4:
He should stay at UW-Badgerville for his senior year and enter the NBA draft after that. (which is Option B)
_____
Explanation:
We will have to calculate the present value of the amount that Lejames will receive if he decides to stay at the college (assuming 50% probability of $500,000 being set as the rookie salary after 1 year) and compare it with the amount of $500,000 that he will get if he decides to leave early for NBA draft.
Assuming that the rookie salary will be set at $500,000, the total amount for which need to calculate the present value is arrived as below:
Total Amount = 50%*500,000 + 50%*600,000 = $550,000
The present value of $550,000 can be calculated as follows:
Present Value of $550,000 = 550,000/(1+8%)^1 = $509,259.26
As the present value of amount expected to be received in future is higher than the salary of $500,000 that will be received by declaring early for NBA draft, Lejames should stay at the college and gain experience, Therefore, Option B is correct.
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