Adjusting a Contract's Nominal Value
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The newspaper claims bobby is making 5.7 million. he claims that this is not true in a present value sense and that he will really be making the following amounts for the next five years
0 (now) 5.5 million (sign up bonus)
1 $4 million
2 $4 million
3 $4 million
4 $4million
5 $7million
If you wanted to raise the norminal value of his contract to 30 million, while preserving the present value, how would you do it? (you can adjust only bonus and the final year's cash flow)
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Solution Summary
The solution presents an Excel file to show how one may preserve the present value of a contract but raise the nominal value.
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