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Question
A star basketball player signs a contract that newspaper reports say is worth $20 million. The player receives $5 million on signing, and $5 million a year for three years. The contract is worth
A) $20 million as reported in the papers.
B) less than $20 million since the present value of $5 million received one or more years from now is less than $5 million.
C) more than $20 million because the present value of $5 million received one or more years from now is more than $5 million.
D) either more or less than $20 million, depending on the value of the discount rate.
Answer
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