Football player Walter Johnson signs a contract calling for payments of $250,000 per year, which begins 10 years from now and then continue for five more years after that. To find the value of this contract today, 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) The present value of $1 and the future value of $1

Question

Quizplus · Accepted Answer

To find the present value of the future payments, we need to use the present value of an annuity of $1 to calculate the present value of the 5-year annuity, and then add the present value of the single payment 10 years from now using the present value of $1. So we need to use the present value tables.

Football Player Walter Johnson Signs a Contract Calling for Payments