Ezekiel Elliot (a professional football player) recently signed a contract that will pay him the following...

Ezekiel Elliot (a professional football player) recently signed a contract that will pay him the following amount (in millions)

Year	Payment
2021	18
2022	11
2023	13
2024	10
2025	12

If the annual interest rate is 5%, what is the present value (in millions) of Elliot’s contract (consider 2020 as time 0)?

Solutions

Expert Solution

Ezekiel Elliot will receive given amount in next 5 years

interest rate r = 5%

So, present value of a cash flow is

PV = CF/(1+r)^t

So, present value of contract = CF2021/(1+r) + CF2022/(1+r)^2 + CF2023/(1+r)^3 + CF2024/(1+r)^4 + CF2025/(1+r)^5

=> Present value of contract = 18/1.05 + 11/1.05^2 + 13/1.05^3 + 10/1.05^4 + 12/1.05^5 = $55.98 million

jeff jeffy answered 2 years ago

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