A professional athlete has signed a contract worth $56 million over 5 years. Assume that value is the value of the contract today. (a) If the contract pays out at the end of each year and the interest rate is 6% nominal annual, compounded monthly, how much is it worth at the end of each year? (b) Draw a cash flow diagram of the payouts of the cash flow in part (a). (c) If the interest rate is 6% nominal annual compounded monthly and the athlete would like to defer the payouts over a span of 25 years, calculate the monthly income over 25 years.

A professional athlete has signed a contract worth $56 million over 5 years. Assume that value is the value of the contract today. (a) If the contract pays out at the end of each year and the interest rate is 6% nominal annual, compounded monthly, how much is it worth at the end of each year? (b) Draw a cash flow diagram of the payouts of the cash flow in part (a). (c) If the interest rate is 6% nominal annual compounded monthly and the athlete would like to defer the payouts over a span of 25 years, calculate the monthly income over 25 years.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.17: Amortized Loans

Problem 1ST

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