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anuary 1984, Richard “Goose” Gossage signed a contract to play for the San Diego Padres that guaranteed him a minimum payment of $9,955,000. The guaranteed payments were $875,000 for 1984, $650,000 for 1985, $800,000 in 1986, $1 million in 1987, $1 million in 1988, and $300,000 in 1989. In addition, the contract called for $5,330,000 in deferred money payable at the rate of $240,000 per year from 1990 through 2006 and then $125,000 a year from 2007 through 2016. If the relevant annual rate of interest is 9 percent and all payments are made on July 1 of each year, what would the present value of these guaranteed payments be on January 1, 1984? (Assume an interest rate of 4.4 percent per 6 months.) If he were to receive an equal annual salary at the end of each of the five years from 1984 through 1988, what would his equivalent annual salary be? Ignore taxes throughout this problem.


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