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2. According to the February 7', 1933 issue of The Sporting News, the Kansas City Royals' designated hitter, Hal McRae, (who led the major leagues
2. According to the February 7', 1933 issue of The Sporting News, the Kansas City Royals' designated hitter, Hal McRae, (who led the major leagues in Runs Batted In in 1982), signed a 3 year contract in January of that year with the following provisions: $400,000 signing bonus, $250,000 salary per year for 3 years (I), followed by 10 years of deferred payments of $125,000 per year, plus several bonus provisions which add as much as $25,000 per year for the 3 years of the contract. Assume that McRae had a 60% probability of receiving the bonuses each year (paid on Dec 31 if earned). What was the Present Value of his contract in early January when he signed it? Assume that he signed it on Jan. 1, 1983. Assume an interest rate of 5% per six months (12.36% effective annual rate] and assume that salary paychecks and deferred payments are received on Jan. 1 and July 1 of each year. Ignore taxes
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