Problem $5\mathrm{.}20($PV of a Cash Flowstream$)$

A rookie quarterback is negotiating his first NFL contract. His opportunity cost is $6\%.$ He has been offered three possible $4-$year contracts. Payments are

guaranteed, and they would be made at the end of each year. Terms of each contract are as follows:

Contract $1,$$$3,500,000,$$$3,500,000,$$$3,500,000,$$$3,500,000$

Contract $2,$$$2,500,000,$$$3,500,000,$$$4,000,000,$$$5,500,000$

Contract $3$ $$6,500,000,$$$1,000,000,$$$1,000,000,$$$1,000,000$

$As$ his adviser, which contract would you recommend that $he$ accept?

Select the correct answer.

a$.$ Contract $3$ gives the quarterback the highest present value; therefore, he should accept Contract $3.$

$.$ Contract $1$ gives the quarterback the highest present value; therefore, he should accept Contract $1.$

c$.$ Contract $1$ gives the quarterback the highest future value; therefore, he should accept Contract $1.$

d$.$ Contract $3$ gives the quarterback the highest future value; therefore, he should accept Contract $3.$

Contract $2$ gives the quarterback the highest present value; therefore, he should accept Contract $2.$