A famous quarterback just signed a $16.2 million contract providing $2.7 million
ID: 2760476 • Letter: A
Question
A famous quarterback just signed a $16.2 million contract providing $2.7 million a year for 6 years. A less famous receiver signed a $15.2 million 6-year contract providing $5 million now and $1.7 million a year for 6 years. The interest rate is 9%. a. What is the PV of the quarterback's contract? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Present value $ million b. What is the PV of the receiver's contract? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Present value $ million c. Who is better paid? Quarterback Receiver
Explanation / Answer
1)C((1 /r) – {1 / [r(1 +r)t]})
=2700000*((1/0.09)-((1/(0.09*(1.09)^6))))
= 12111980
=
12.11198019
Million
2) PV = C0 + C ((1 / r ) – {1 / [ r (1 + r ) t ]})
=5000000+1700000*((1/0.09)-((1/(0.09*(1.09)^6))))
= 12626062
= 12.6260616 Million
3) Receiver
12.11198019
Million
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