D 1 2 3 Assumptions and Calculated Values Bank Rate Information: Gavin's Bank Account Rate (compounded monthly) Monthly Bank Rate Effective Annual Interest 8.00% 4 0.6667 % 5 8.3000% Rate 6 7 Year 1 Year 2 Year 3 Year 4 Total value B $504,000 $2,097,446 $524,160 $43,680 S524,160 $43,680 10.6148 $545,126 $45,427 9 $42,000 10 11.4958 9.8013 9.0501 Salary and Bonus Information: Annual Salary (4% COLA) Monthly Salary Discount factor (based on Cell 34 above) 11 Discounted Annual Salary 12 13 Time-in-League Bonus 14 Discount factor (based on Cell B4 above) 15 Discounted Time-in-League Bonus 116 17 Milestone Bonus 18 Discount factor (based on $10,000 $10,000 0.9609 $250,000 $250,000 $250,000 $1,000,000 $250,000 0.7873 0:9234 0.8526 0.7269 18 0.9234 0.8526 0.7873 0.7269 Discount factor (based on Cell B5 above) Discounted Milestone 19 Bonus 20 21 $78,624 22 $75,000 0.9234 $314,617 $78,624 0.7873 $81,789 0.7269 0.8526 Performance Bonus Discount factor (based on Cell B5 above) Discounted Performance Bonus 23 $ 24 25 $2,750 $2,750 566,000 26 11.4958 10.6148 Monthly Endorsement Contract Payment Discount factor (based on Cell 84 above) Discounted Monthly Endorsement Payment 27 S 28 29 Contract's Total Nominal Value $3.488.063 30 Contract's Total Discounted Value 1. Given your worksheet calculations, which of the following statements is accurate? Is Steven's estimate of the value of Gavin's contract accurate on either a nominal or discounted basis? Check all that apply. Steven's estimate of the nominal value of Gavin's contract is correct. It is appropriate and necessary to discount the performance bonus using the bank account's effective annual interest rate because of differences in the timing of the compounding of the bank account and that of the payments for the performance bonus Steven's estimate of the value of Gavin's contract is incorrect on a nominal basis, and the error is $63,663, Related Question: The local car dealer creating Gavin's endorsement opportunity can earn 6% (compounded quarterly) on his deposited funds. She would have to deposits each quarter, starting exactly two years before the day Gavin signs his contract, to fund her endorsement contract. (Note: The future value interest factor of 6% compounded quarterly for eight quarterly periods is 8.4328.) D 1 2 3 Assumptions and Calculated Values Bank Rate Information: Gavin's Bank Account Rate (compounded monthly) Monthly Bank Rate Effective Annual Interest 8.00% 4 0.6667 % 5 8.3000% Rate 6 7 Year 1 Year 2 Year 3 Year 4 Total value B $504,000 $2,097,446 $524,160 $43,680 S524,160 $43,680 10.6148 $545,126 $45,427 9 $42,000 10 11.4958 9.8013 9.0501 Salary and Bonus Information: Annual Salary (4% COLA) Monthly Salary Discount factor (based on Cell 34 above) 11 Discounted Annual Salary 12 13 Time-in-League Bonus 14 Discount factor (based on Cell B4 above) 15 Discounted Time-in-League Bonus 116 17 Milestone Bonus 18 Discount factor (based on $10,000 $10,000 0.9609 $250,000 $250,000 $250,000 $1,000,000 $250,000 0.7873 0:9234 0.8526 0.7269 18 0.9234 0.8526 0.7873 0.7269 Discount factor (based on Cell B5 above) Discounted Milestone 19 Bonus 20 21 $78,624 22 $75,000 0.9234 $314,617 $78,624 0.7873 $81,789 0.7269 0.8526 Performance Bonus Discount factor (based on Cell B5 above) Discounted Performance Bonus 23 $ 24 25 $2,750 $2,750 566,000 26 11.4958 10.6148 Monthly Endorsement Contract Payment Discount factor (based on Cell 84 above) Discounted Monthly Endorsement Payment 27 S 28 29 Contract's Total Nominal Value $3.488.063 30 Contract's Total Discounted Value 1. Given your worksheet calculations, which of the following statements is accurate? Is Steven's estimate of the value of Gavin's contract accurate on either a nominal or discounted basis? Check all that apply. Steven's estimate of the nominal value of Gavin's contract is correct. It is appropriate and necessary to discount the performance bonus using the bank account's effective annual interest rate because of differences in the timing of the compounding of the bank account and that of the payments for the performance bonus Steven's estimate of the value of Gavin's contract is incorrect on a nominal basis, and the error is $63,663, Related Question: The local car dealer creating Gavin's endorsement opportunity can earn 6% (compounded quarterly) on his deposited funds. She would have to deposits each quarter, starting exactly two years before the day Gavin signs his contract, to fund her endorsement contract. (Note: The future value interest factor of 6% compounded quarterly for eight quarterly periods is 8.4328.)
