Before the 2017 National Football League season, the New York Giants signed defensive lineman Jason Pierre-Paul to a contract that would pay him an immediate $5 million signing bonus and the following amounts: $2.5 million for the 2017 season, $17.5 million for the 2018 season, $19.5 million for the 2019 season, and $17.5 million for the 2020 season. Assume that Pierre-Paul receives each of his four seasonal salaries as a lump-sum payment at the end of the year.
a. One newspaper article said that “Pierre-Paul’s deal is worth $62 million.” Do you agree that $62 million was the value of this contract? Briefly explain.
b. What was the present value of Pierre-Paul’s contract at the time he signed it, assuming an interest rate of 10 percent?
c. If you use an interest rate of 5 percent, what was the present value of Pierre-Paul’s contract?