Time Value Money response needed

Instructions:

You are required to participate in the discussions in this course.

Discussion topic:

In 1999, the New York Mets' third baseman, Bobby Bonilla, was 36 years old and had one year left on his contract. Both parties, the Mets and Bonilla, wanted to part ways, but it would have cost the Mets $5.9 million to buy out Bonilla. The team's owner and management did not want to give Bonilla a lump sum of $5.9 million.

The Mets' owner and general manager went to Bonilla and offered him a deal: if Bonilla would agree to defer the $5.9 million payment and spread payments out over a 25-year span starting in 11 years, the Mets would begin paying him back, with interest in 11 years. The interest rate was 8% (to clarify, Bonilla would not receive any money for the 1st 10 years, and then would receive 25 annual payments starting in year 11. The 8% interest applies across the entire 35 years.)

Who do you think got the better end of this deal? How much would Bonilla have ended up collecting in the end? How would you try to figure this out?

Explain your choice and your reasoning using the tools presented in this course.

To participate in this discussion: