1) MLB star Shohei Ohtani recently received a 10-year $700 million dollar contract.
According to press accounts, $680 million of this is deferred. Assume Ohtani will
receive $2 million a year in years 1 through 10. Also assume he receives the $680
million deferral in year 10. (So in year 10 he receives a total of $682 million).
Further assume Ohtani can earn 7% on his investments. What is the present value
of his contract?
For full credit you must do this in Excel and hand in print out.
2) Read the following story;
What One ETF From the Dot-Com Era Can Tell Us About Tech Investing Now - WSJ
An investor who invested $1000 in 1999, and reinvested all dividends, would have
had $9,394 at the end of 2023. For simplicity, assume the holding period was
exactly 25 years. What was the investor's annual percent return? Present your
answer to four decimal places. (e.g. 5.25% would be .0525)
3) The next ten year of earning for Johnson and Johnson (in millions) are:
Johnson and Johnson
1
2
3
4
5
6
7
8
9
10
year
earnings $22,631 $23,762 $24,950 $26,198 $27,508 $28,883 $30,327 $31,844 $33,436 $35,108
Use a discount rate of 10%. What is the present value of this stream of earnings
(today is year 0)? (You will need to discount each cash flow back separately, then
sum them.)
For full credit you must do this in Excel and hand in print out.
4) Assume a 3% interest rate. What is the total present value of five $120 cash
flows paid in each of the years 1 to 5? Use the Excel PV function. (Report your
answer as a positive number.)
5) Use calculator. You invest $100 in a savings account today. In five years this has
grown to $148. What was your annual rate of return. (Hint: you can check your
answer by calculating 100(1+r)^5 and seeing if you get $148.) Present your answer
to four decimal places. (e.g. 5.25% would be .0525)
