When David Ball was a free agent, he signed a four-year contract with the Phillies. The terms included a signing bonus of $800,000, payable at signing, and annual salaries of $3.0 million for Year 1, $4.2million for Year 2, and $4.5 million for Years 3 and 4.

B. Suppose that Year 4 was an option Year in David Ball's contract - that is the Phillies could have released him. Furthermore, assume that the Phillies would have to pay Ball $1 million in Year 4 if he was released, and that there is a 50% chance that he would be released. Calculate the expected economic value of Ball's contract at signing using a 10 percent discount rate.

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To calculate the expected economic value of David Balls contract at signing we need to consider the ... View the full answer