311.2
Assume that a particular college basketball player is certain to go pro. He is 19 now and will likely earn $5 million per year for 10 years once he turns pro at the age of 22. If his first paycheck of $5 million dollars is due 3 years from today, what is the value today of his future earnings as a professional basketball player? Assume a discount rate of 15% per year. (3 pts)
If the discount rate is lower would the value today be lower or higher? WHY?
If he expects to turn pro earlier, but still plans to play only 10 years, will the value of his earnings today be lower or higher? WHY?