*5. You are writing the great American novel, and have signed a contract with the world’s most prestigious publisher. To keep you on schedule, the publisher promises you a $100,000 bonus when the first draft is complete, and another

$100,000 following revisions. You believe that you can write the first draft in a year, and have the revisions done at the end of a second year.

a. If interest rates are 5%, what is the value today of the publisher’s future payments?

b. Suppose the publisher offers you $80,000 after the first draft and $125,000 following revisions.

Is this a better deal than the original offer?