Question
In: Finance
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%.
Solutions
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 | ||||
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