Bubba Jones has an offer to play pro football in the Arena L

Bubba Jones has an offer to play pro football in the Arena League. Part of his contract calls for him to receive a signing bonus, payable as follows: 100,000 dollars immediately, 70000 dollars in two years, and 120000 dollars in 6 years. What is the present value of the signing bonus, assuming 6.3 percent effective interest?

Solution

Pv = fv*(1+i)^-n

= 100000+[70000*(1+6.3%)^-2]+[120000*(1+6.3%)^-6]

=100000+61948.60+83172.86

=$245,121.46