Check my Wok A famous quarterback just signed a contract for $9.6 million, provi

Question

Check my Wok A famous quarterback just signed a contract for $9.6 million, providing $3.2 million a year for 4 years. A less famous receiver signed a contract for $8.6 million, providing $3 million now and $2.5 million a year for 4 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? O Quarterback O Receiver

Explanation / Answer

a)

Present value of quaterback = 3,200,000 / ( 1 + 0.09)1 + 3,200,000 / ( 1 + 0.09)2 + 3,200,000 / ( 1 + 0.09)3 + 3,200,000 / ( 1 + 0.09)4  

Present value of quaterback = 10.37 million

b)

Present value of receiver's contract = 3,000,000 + 2,500,000 / ( 1 + 0.09)1 + 2,500,000 / ( 1 + 0.09)2 + 2,500,000 / ( 1 + 0.09)3 + 2,500,000 / ( 1 + 0.09)4

Present value of receiver's contract = 11.1 million

c)

Receiver

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