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The baseball player Alex Rodriguez signed a contract for a stated value of $275 mil in...

The baseball player Alex Rodriguez signed a contract for a stated value of $275 mil in 2007. The amount actually consisted of $2 mil immediately, along with $28 mil in the first year and the remaining $245 mil to be paid evenly over the years 2009 through 2017. How much was the contract really worth in 2007 ? Assume an interest rate of 5%.

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Expert Solution

Year Year(n) inflow disc. Fac=1/(1+5%)^n Disc. Inflow
2007                        -                    2,000,000                          1.000000           2,000,000
2008                         1               28,000,000                          0.952381         26,666,667
2009                         2               27,222,222                          0.907029         24,691,358
2010                         3               27,222,222                          0.863838         23,515,579
2011                         4               27,222,222                          0.822702         22,395,790
2012                         5               27,222,222                          0.783526         21,329,323
2013                         6               27,222,222                          0.746215         20,313,641
2014                         7               27,222,222                          0.710681         19,346,325
2015                         8               27,222,222                          0.676839         18,425,072
2016                         9               27,222,222                          0.644609         17,547,687
2017                       10               27,222,222                          0.613913         16,712,083
            275,000,000 PW of the contract      212,943,525
The contract really worth in 2007 is $212,943,525

jeff jeffy answered 2 years ago
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