Finance Practice Problems
PROBLEM:

In January 1984, Richard "Goose" Gossage signed a contract to play for the San Diego Padres that guaranteed him a minimum total of $10,876,000.00. The guaranteed payments were:
$951,000.00 for 1984
$582,000.00 for 1985
$970,000.00 for 1986
$877,000.00 for 1987
$701,000.00 for 1988
$561,000.00 for 1989

In addition, the contract called for $6,234,000.00 in deferred money payable at the rate of $302,000.00 per year from 1990 through 2006 and then $110,000.00 per year from 2007 through 2016. (NOTE: the $ figure given here ($6,234,000.00) is simply the sum of all the remaining annual payments to be made over time.)

If the relevant interest rate is 3 percent APR, compounded annually, and all payments are made on July 1 of each year, what would the present value of these guaranteed payments be on January 1, 1984?

ANSWER:
(Enter your answer in the box above in DECIMAL form.)



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