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A famous quarterback just signed a $18.0 million contract

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Question

A famous quarterback just signed a $18.0 million contract providing $3.6 million a year for 5 years. A less famous

receiver signed a $17.0 million 5-year contract providing $4 million now and $2.6 million a year for 5 years. The interest rate is 10%. What is the PV of the quarterback’s contract? What is the PV of the receiver’s contract?

 
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A couple will retire in 50 years

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A couple will retire in 50 years; they plan to spend about $24,000 a year in retirement, which should last about

25 years. They believe that they can earn 7% interest on retirement savings. If they make annual payments into a savings plan, how much will they need to save each year? Assume the first payment comes in 1 year. How would the answer to part (a) change if the couple also realize that in 20 years they will need to spend 54,000 on their child’s college education?

 
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discount

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A store will give you a 4.25% discount on the cost of your purchase if you pay cash today. Otherwise, you will be

billed the full price with payment due in 1 month. What is the implicit borrowing rate being paid by customers who choose to defer payment for the month?

 
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bond

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A 25-year Treasury bond is issued with face value of $1,000, paying interest of $62 per year. If market yields

increase shortly after the T-bond is issued, what is the bond’s coupon rate?

 
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