Football player Walter Johnson signs a contract calling for payments of $2,500,000 per year, to begin 10 years from now. To find the present value of this contract, which table or tables should you use?
A) the future value of $1
B) the future value of an annuity of $1 and the future value of $1
C) the present value of an annuity of $1 and the present value of $1
D) the present value of an annuity of $1

Question

Quizplus · Accepted Answer

The contract involves payments that will begin in the future and continue over time, making it an annuity. Therefore, we should use the present value of an annuity of $1 table to calculate the present value of the payments. Additionally, we need to adjust for the time value of money by discounting the future payments to present value, so we should also use the present value of $1 table.

Football Player Walter Johnson Signs a Contract Calling for Payments