What amount should the agent have sought from the bears

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A few years ago the Chicago Bears made a long-term commitment to a place-kicker, W. Doink, who did not work out. By releasing Doink at the end of his contract, they were obligated to pay him the present value of the remain­ing five years of his contract. The contract called for a $3.5 million dollar payment next year, with annual increases at the rate of three percent.

Problem a. Doink's agent contended that Doink could only earn an annual return of four percent on the lump-sum that the Bears would offer him. What amount should the agent have sought from the Bears?

Problem b. The Bears' legal team didn't know whether to use a three percent rate or an eight percent rate to calculate the present value of their offer (Common sense said they should choose the higher rate).

i. What is the present value of the payments at three percent?
ii. What is the present value of the payments at eight percent?

Reference no: EM132987395

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