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A baseball player is offered a 5-year contract which pays him the following amounts:

  • Year 1: $1.2 million
  • Year 2: $1.6 million
  • Year 3: $2.0 million
  • Year 4: $2.4 million
  • Year 5: $2.8 million

Under the terms of the agreement all payments are made at the end of each year.

Instead of accepting the contract, the player asks his agent to negotiate a contract which has a present value of $1 million MORE than that which has been offered. Moreover, the player wants to receive his payments in the form of a 5-year annuity (payments at the end of the year). All cash flows are discounted at 10%. If the team were to agree to the player's terms, what would be the player's annual salary?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M947367

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