In 2015, a baseball player signed a contract reported to be worth $81.1 million.

Question

In 2015, a baseball player signed a contract reported to be worth $81.1 million. The contract was to be paid as $11.7 million in 2015, $12.5 million in 2016, $14.1 million in 2017, $14.2 million in 2018, $14.2 million in 2019, and $14.4 million in 2020 lf the appropriate interest rate is 10 percent. what kind of deal did the player snag? Assume all payments are paid at the end of the year. (Enter your answer in dollars, not millions of dollars, o.g. 1.234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value References eBook & Resources

Explanation / Answer

Payment in 2015 = $11.7 million
Payment in 2016 = $12.5 million
Payment in 2017 = $14.1 million
Payment in 2018 = $14.2 million
Payment in 2019 = $14.2 million
Payment in 2020 = $14.4 million

Interest Rate = 10%

Present Value = $11,700,000 / 1.10 + $12,500,000 / 1.10^2 + $14,100,000 / 1.10^3 + $14,200,000 / 1.10^4 + $14,200,000 / 1.10^5 + $14,400,000 / 1.10^6
Present Value = $58,204,779.29

Present value of payments is lower than the worth of contract. So, player made bad deal

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