Question

David just turned 18 today and he aspires to be a professional football athlete immediately after he turns 21 years old. He estimates that his monthly wage will be fixed at 80,000, assumed to be payable at the beginning of each month for an exact 10 year career. The effective annual rate of interest is 5% per annum.

Calculate the present value of these earnings.

Answer 1

monthly convertible annual rate=((1+5%)^(1/12)-1)*12

Present value of the earnings=80000/(((1+5%)^(1/12)-1)*12/12)*(1-1/(1+((1+5%)^(1/12)-1)*12/12)^(12*10))*(1+((1+5%)^(1/12)-1)*12/12)*1/(1+5%)^3=6,575,647.715