Mr. Charlie "Speedy" Smith just signed an $11.5 million, four year contract with an NFL team (not the Browns!).He received a signing bonus of $2 million; $1,500,000 at the end of year one; $3 million at the end of year two; $3.5 million at the end of year three; and $1.5 million at the end of year four.What is the present value of his contract if money can earn 4% per year?

Contract yearFuture Contract Amounts

0$2,000,000

1$1,500,000

2$3,000,000

3$3,500,000

4$1,500,000

$11,500,000

Question:Explain what present value is and why it is important for you to understand the concept?