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%?
1 answer:
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
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