A star basketball player signs a contract that newspaper reports indicate is worth $10 million. The player receives $2 million upon signing, and $2 million every year for four years. The contract is worth
A) less than $10 million since the present value of $2 million received one or more years from now is less than $2 million.
B) more than $10 million since the present value of $2 million received one or more years from now is more than $2 million.
C) $10 million as reported in the press.
D) some amount around $10 million. To determine whether it is more or less than $10 million we need to know whether the interest the player can earn is more or less than the market rate of interest.
Answer: A
You might also like to view...
The U.S. dollar will appreciate in value if
A) the demand curve for U.S. dollars shifts rightward. B) the demand curve for U.S. dollars shifts leftward. C) the supply curve of U.S. dollars shifts rightward. D) Americans choose to buy more foreign goods.
One of the problems experienced by the savings and loan industry during the 1980s was
A) managers lack of expertise to manage risk in new lines of business. B) heavy regulations in the new areas open to S&Ls. C) slow growth in lending. D) close monitoring by the FSLIC.
What is the name of the pension plan under which employees can make tax-deductible contributions through regular payroll deductions?
A) 401(k) plans B) Social Security plans C) Early retirement plans D) 486(b) plans
What can good assumptions do?
a) cause economists to leave out important variables that make their theories worthless b) simplify the complex world and make it easier to understand c) further complicate an already difficult topic d) allow economists to see the "big picture" instead of only small segments