Babe Ruth Jr. has agreed to play for the Cleveland Indians for $3 million per year for the next 10 years. What table would you use to calculate the value of this contract in today's dollars?
A) Present value of an annuity
B) Present value of a single amount
C) Future value of an annuity
D) None of these

Question

Quizplus · Accepted Answer

The present value of an annuity table is used to calculate the present value of a series of equal payments made at regular intervals, which is exactly what the Babe Ruth Jr. contract entails. We need to find the present value of his $3 million per year payments for the next 10 years, so we would use this table to calculate the value of the contract in today's dollars.