Calculating Annuity Values An All-Pro defensive lineman is in contract negotiati

Question

Calculating Annuity Values

An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure:

  

  

All salaries are to be paid in a lump sum. The player has asked you as his agent to renegotiate the terms. He wants a $10.3 million signing bonus payable today and a contract value increase of $2,300,000. He also wants an equal salary paid every three months, with the first paycheck three months from now. If the interest rate is 5.8 percent compounded daily, what is the amount of his quarterly check? Assume 365 days in a year.

An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure:

Explanation / Answer

So present value of total payment is 39552833.65

Formula for equal installment, A = P x r(1+r)^2/((1+r)^2-1)

Here P = 39,552833.65

r = 5.8%/365=0.016

hence A =39552833.65*0.016(1.016)^2/[(1.016)^2-1]

=$ 2028040

his first salary is 2028040

month cashflows PV factor 5.8% present value 1 0 6800000 0.945179584 6427221.172 1 5400000 0.893364446 4824168.01 2 5900000 0.844389836 4981900.031 3 6400000 0.798100034 5107840.216 4 7800000 0.754347858 5883913.293 5 8500000 0.712994195 6060450.655 6 9300000 0.673907556 6267340.275 Total 39552833.65

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