Joey “8 seconds baby!” Johnson is a professional bronc rider who has just signed a big...

Joey “8 seconds baby!” Johnson is a professional bronc rider who has just signed a big endorsement contract. Red Bull has agreed to pay Joey a guaranteed $100,000 per year for 15 years to wear a Red Bull helmet whenever he rides. The media are reporting that Joey has signed a $1.5 million dollar contract, but, assuming a discount rate of 6%, the actual present value of this endorsement contract to Joey is approximately

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Expert Solution

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=100,000[1-(1.06)^-15]/0.06

=100,000*9.71224899

=$971224.9(Approx)

jeff jeffy answered 2 years ago

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