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Author Question: Nic is a great basketball player with a long professional career in front of him. He plays for a ... (Read 86 times)

EAugust

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on: Jul 11, 2018
Nic is a great basketball player with a long professional career in front of him. He plays for a European professional team that has made him a very interesting offer.
 
  If he will take a below market salary beginning one year from today, they will guarantee a 5 annual raise forever - even after he stops playing ball. If the offer is for a 5,000,000 salary to be received one year from today with subsequent payments as described, what is the present value of the contract offer if the cash flows should be discounted at a rate of 12?
  A) 71,428,571
  B) 75,000,000
  C) 41,666,667
  D) 43,750,000

Question 2

Today is your 21st birthday and your bank account balance is 25,000. Your account is earning
  6.5 interest compounded daily. How much will be in the account on your 50th birthday?
 
  A) 164,631 B) 163,823 C) 162,183 D) 159,795
Foundations of Finance ¦ Keown, Petty, Martin ¦ 9th Edition
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dantucker

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Reply #1 on: Jul 11, 2018
Answer to Question 1

A
Explanation: A) PV = PMT/(r-g) 5,000,000/(.12-.05 ) = 71,428,571

Answer to Question 2

A


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