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An NBA center recently signed a seven-year contract for $121 million. What is the present value of this contract, given a 9% interest rate? In other words, how much must the ball club invest when the contract is signed, so that it can make seven equal payments of $17285714.29, the first one due immediately?

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facundobuzzetti

Answer:

PV= $86,998,184.72

Step-by-step explanation:

Giving the following information:

Annual payments= $17,285,714.29

Number of years= 7

Interest rate= 9%

First, we need to determine the future value incorporating the interest rate.

FV= {A*[(1+i)^n-1]}/i

A= annual payment

FV= {17,285,714.29* [(1.09^7) - 1]} / 0.09

FV= $159,036,085.1

Now, we can calculate the present value:

PV= FV/(1+i)^n

PV= 159,036,085.1/1.09^7

PV= $86,998,184.72

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