Question

On July​ 1, 2000, the New York Mets reached an agreement with Bobby Bonilla to defer the remaining​ $5.9 million on​ Bonilla’s contract​ (with interest), which would have otherwise been due to be paid immediately. The deferment agreement called for the salary to be paid in 25 equal​ installments, with the first payment being made on July​ 1, 2011. The agreement stipulated that the relevant interest rate applied to this deal would be​ 9%. Beginning on July​ 1, 2011​ (and every July 1 for the following 24​ years), how much was Bobby Bonilla paid by the​ Mets? In other​ words, what is the value of each annual salary​ installment? ​(Please note: The details of the above agreement have been altered slightly from the actual scenario presented in the weekly​ lecture.) The annual salary installment paid to Bobby Bonilla each​ year, beginning on July​ 1, 2011,​ is: ​$ nothing ​(round your answer to the nearest​ dollar)

Answer 1

Annual salary installment is given as=5.9*1.09^10*9%/(1-1/1.09^25)
=1.42197 million
=1421973.27401