Reference no: EM132945690

Problem 1: Assume that two athletes sign 8-year contracts that pay out a total of $60 million over the life of the contracts. One contract will pay the $60 million in equal installments over the 8 years. The other contract will pay the $60 million in installments, but the installments increase 5% per year. This is easy for the $60 million over 8 years in equal installments ($60M/8 years = $7.5M/year). It takes some work to set up the alternative payment scheme so that all eight payments also equal $60M. If you just take $7.5M per year and add 5% per year, the nominal total is more than $60M and you are comparing apples and oranges and this exercise will not show anything about the time value of money. Which athlete received the better deal? You must show your work and explain your position in detail.