A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 6%. He has been offered three possible 4-year contracts. Payments are guaranteed, and they would be made at the end of each year. Terms of each contract are as follows: 2 3 Contract 1 $2,500,000 $2,500,000 $2,500,000 $2,500,000 Contract 2 $2,000,000 $3,000,000 $4,000,000 $5,000,000 Contract 3 $6,500,000 $1,000,000 $1,000,000 $1,000,000 As his adviser, which contract would you recommend that he accept?
A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 6%. He has been offered three possible 4-year contracts. Payments are guaranteed, and they would be made at the end of each year. Terms of each contract are as follows: 2 3 Contract 1 $2,500,000 $2,500,000 $2,500,000 $2,500,000 Contract 2 $2,000,000 $3,000,000 $4,000,000 $5,000,000 Contract 3 $6,500,000 $1,000,000 $1,000,000 $1,000,000 As his adviser, which contract would you recommend that he accept?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 6%. He has been offered
three possible 4-year contracts. Payments are guaranteed, and they would be made at the end of each year.
Terms of each contract are as follows:
1
2
3
Contract 1 $2,500,000 $2,500,000 $2,500,000 $2,500,000
Contract 2 $2,000,000 $3,000,000 $4,000,000 $5,000,000
Contract 3 $6,500,000 $1,000,000 $1,000,000 $1,000,000
As his adviser, which contract would you recommend that he accept?
Select the correct answer.
O a. Contract 1 gives the quarterback the highest present value; therefore, he should accept Contract 1.
b. Contract 1 gives the quarterback the highest future value; therefore, he should accept Contract 1.
O . Contract 2 gives the quarterback the highest present value; therefore, he should accept Contract 2.
O d. Contract 3 gives the quarterback the highest future value; therefore, he should accept Contract 3.
O e. Contract 3 gives the quarterback the highest present value; therefore, he should accept Contract 3.
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