A noted free agent running back just signed a four -year, 30 -million dollar contract with a new team. He will get a 7 -million dollar signing bonus and a 4.5 -million dollar roster bonus. Additionally, he will get 3.25 million for year one, 5.25 million for year two, 5 million for year three, and 5 million for year four. Salary is paid at the end of the first year. Find the present value of his contract if money can earn 6%.
A) $15,897,083.78
B) $27,397,083.78
C) $23,911,000.35
D) $30,000,000

Question

Quizplus · Accepted Answer

The present value (PV) of the contract can be calculated by discounting each payment to its present value using the formula PV = FV / (1 + r)^n, where FV is the future value of the payment, r is the annual interest rate, and n is the number of years until the payment is made. The signing bonus and roster bonus are immediate payments, so their present value is their full amounts. The salary payments are discounted back to their present values. Summing these gives the total present value of the contract.

A Noted Free Agent Running Back Just Signed a Four