Xavier is a baseball player negotiating a contract to play for a team for one year. He is usually paid $10 million a year for playing, but the salary caps for his team means that he will have to be paid $5 million this year and the remainder next year. If the interest rate is 8 percent, how much should that remaining amount be next year?

Question

Quizplus · Accepted Answer

To find out how much the remaining amount should be next year, we need to calculate the future value of $5 million after one year with an interest rate of 8 percent.

FV = PV x (1 + r)^n 
FV = $5 million x (1 + 0.08)^1 
FV = $5.4 million

Therefore, the remaining amount next year should be $5.4 million. The correct answer is (C).

Xavier Is a Baseball Player Negotiating a Contract to Play