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A Moravian bowler is offered a 5-year contract to join the Bethlehem Keglers which is a member of the pro bowling tour. The contract proposal

A Moravian bowler is offered a 5-year contract to join the Bethlehem Keglers which is a member of the pro bowling tour.

The contract proposal will pay the following amounts (in millions):

Year 1 Year 2 Year 3 Year 4 Year 5
$6.0 $7.0 $8.0 $9.0 $10.0
Under the terms of the agreement all payments are made at the end of each year.
Instead of accepting the contract, the player proposes a counteroffer which has a present value of $5.0 million more than the present value of the offer proposed by the team. Moreover, the player wants to receive the payments in the form of a 5-year annuity due which would pay at the beginning of each year. All cash flows are discounted at 10 percent.
If the team were to agree to the player's terms, what would be the annual salary (in millions of dollars)? Note that this player will earn the same amount in each year of the contract since this is an annuity.
a. $7.00 M per year
b. $7.39 M per year
c. $8.30 M per year
ANS. PMT

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