Assume that an appropriate discount rate for A-Rod to apply to the contract payments is

7% per year.

1. Calculate the true promised payments under this contract, including the deferred payments with interest.

 

2. Draw a timeline of all of the payments.

 

3. Calculate the present value of the contract.

 

4. Compare the present value of the contract to the quoted value of

 

$252 million. What explains the difference?