Football player Walter Johnson signs a contract calling for payments of $250,000 per year, to begin 10 years from now. To find the present value of this contract, which table or tables should you use?
A) The future value of $1
B) The future value of an annuity of $1 and the future value of $1
C) The present value of an annuity of $1 and the present value of $1
D) None of these

Question

Quizplus · Accepted Answer

To find the present value of the contract, we need to use the present value of an annuity of $1, which will help us find the value of the annual payments in today's dollars. We also need to use the present value of $1 to discount the future payments to their present value. The future value of $1 and the future value of an annuity of $1 do not help us find the present value of the contract.

Football Player Walter Johnson Signs a Contract Calling for Payments