Question

Michael received a professional baseball contract paying $7,000,000 per year for 5 years, Bert received a two-year contract for $16,000,000 per year. For purposes of calculations, treat these contracts as ordinary annuities (equal payments each year). Who's contract has a greater present value if we assume a discount rate of 6%?

Answer 1

Answer:

Michael

Explanation:

In this question we use the present value function that is shown in the attachment

In the first case

Future value = $0

Rate of interest = 6%

NPER = 5 years

PMT = $7,000,000

The formula is shown below:

= PV(Rate;NPER;-PMT;FV;type)

So, after solving this, the answer is $29,486,546.50

In the second case

Future value = $0

Rate of interest = 6%

NPER = 2 years

PMT = $16,000,000

The formula is shown below:

= PV(Rate;NPER;-PMT;FV;type)

So, after solving this, the answer is $29,334,282.66

Therefore, we concluded that the Michael has a greater present value