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    Ghaundar's Avatar
    Ghaundar Posts: 3, Reputation: 1
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    #1

    Dec 10, 2007, 11:58 AM
    Future Value of an annuity
    It's a multiple choice question and I think I have the right answer but simply want to double check. If a baseball player is getting 3 million a year for 10 years what table would you use to calculate the value of his contract in today's dollars? I think it is the future value of an anuity table. Could someone confirm if I am correct? Thanks in advance.
    Gator1087's Avatar
    Gator1087 Posts: 17, Reputation: 3
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    #2

    Dec 12, 2007, 01:33 AM
    Quote Originally Posted by Ghaundar
    It's a multiple choice question and I think I have the right answer but simply want to double check. if a baseball player is getting 3 million a year for 10 years what table would you use to calculate the value of his contract in todays dollars? I think it is the future value of an anuity table. Could someone confirm if I am correct? Thanks in advance.
    No, you would use the present value annuities table. Think about it conceptually for a moment. You are not earning interest on the payments in the contract, so it wouldn't make sense that the contract is worth more now than it would be in ten years. The value today of a contract paying 3 million dollars a year for 10 years would be less than the actual total payment you receive ($30 million) because the value of one dollar today is worth more than one dollar in ten years. The future value of an annuity table would be used to figure out how much the contact would be worth in ten years.
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