Michael received a professional baseball contract paying $7,000,000 pe

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.

Who’s contract has a greater present value if we assume a discount rate of 6%?
A) Bert = $29,334,283
B) Michael = $29,486,547
C) Bert = $39,459651
D) Michael = $39, 743,196

ANSWER

B
Explanation: B) Michael: Via Calculator: N = 5, I =6, PMT = 5,000,000, Solve for PV = $29,486,547.
Bert: Via Calculator: N = 2, I =6, PMT = 16,000,000, Solve for PV = $29,334,283.