Question

Part (a): It is said that the Indian who sold Manhattan for $37 was a sharp salesman. If he had put his $37 away at 8% compounded semiannually, it would now be worth more than $4 billion, and he could buy most of the now-improved land back! Assume that this seller invested on January 1, 1701, the $37 he received. (Enter amounts in whole dollars, not in billions. Round final answers to nearest whole dollar amount.) Required: 1. Use Excel to determine the balance of the investment as of December 31, 2018, assuming a 8% interest rate compounded semiannually. (Hint Use the FV function in Excel.) 2. Use Excel to determine the balance of the investment as of December 31, 2018, assuming an 9% annual interest rate, compounded semiannually. (Hint Use the FV function in Excel.) 3. What would be the balances for requirements 1 and 2 if interest is compounded quarterly? 4. Assume that the account consisting of this investment had a balance of $4.5 billion as of December 31, 2018. How much would the total amount be on December 31, 2024, if the annual interest rate is 9%, compounded semiannually? Part (b): In 2000, a star major-league baseball player signed a 10-year, $265 million contract with the Texas Rangers. Assume that equal payments would have been made each year to this individual and that the owner's cost of capital (discount rate) was 7% at the time the contract was signed. What is the present value cost of the contract to the owners as of January 1, 2000, the date the contract was signed, in each of the following independent situations? (Use Table 1 and Table 2.) (Round your answers to the nearest whole dollar amount and not in millions.) Required: 1. The baseball player received the first payment on December 31, 2000, 2. The baseball player received the first payment on January 1, 2000, the date the contract was signed 3. Assuming the owner is in the 39% income tax bracket, calculate your answer for requirement 1 Complete this question by entering your answers in the tabs below. Red Al Reg A2 Reg A3 Red A4 Reg Bi Reg B2 Reg B3 Use Excel to determine the balance of the investment as of December 31, 2018, assuming a 8% Interest rate compounded semiannually. (Hint: Use the FV function in Excel.) Balance of the investment Reg A2 >

Answer 1

	1
	Pv	Sales Price on Jan1,1701	$37
	Rate	Semi annual interest rate=(8/2)%	4%
	Nper	Number of semiannual Period	636	(318 years*2)
	FV	Balance of investment as on Dec,31,2018	$2,520,028,881,077	(Using FV function of excel with Rate =4%, Nper=636, Pv=-37)
		Balance of investment as on Dec,31,2018	$2520 billion
	2
	Pv	Sales Price on Jan1,1701	$37
	Rate	Semi annual interest rate=(9/2)%	4.5%
	Nper	Number of semiannual Period	636	(318 years*2)
	FV	Balance of investment as on Dec,31,2018	$53,230,733,226,976	(Using FV function of excel with Rate =4.5%, Nper=636, Pv=-37)
		Balance of investment as on Dec,31,2018	$53,231 billion
	3	INTEREST RATE COMPOUNDED QUARTERLY
	Pv	Sales Price on Jan1,1701	$37
	Rate	Quarterly interest rate=(8/4)%	2%
	Nper	Number of QuarterlyPeriod	1272	(318 years*4)
	FV	Balance of investment as on Dec,31,2018	$3,218,253,166,433	(Using FV function of excel with Rate =2%, Nper=1272, Pv=-37)
		Balance of investment as on Dec,31,2018	$3218billion
	Pv	Sales Price on Jan1,1701	$37
	Rate	Quarterly interest rate=(9/4)%	2.250%
	Nper	Number of Quarterly Period	1272	(318 years*4)
	FV	Balance of investment as on Dec,31,2018	$72,433,678,349,482	(Using FV function of excel with Rate =2.25%, Nper=1272, Pv=-37)
		Balance of investment as on Dec,31,2018	$72,434 billion
	4
	Pv	Balance as on December 31,2018	$4.5	billion
	Rate	Semi-Annual interest rate(9/2)%	4.5%
	Nper	Number of Semi annual Period=6*2	12	(2024-2018)
	FV	Balance of investment as on Dec,31,2024	$7.63	Billion	(Using FV function of excel with Rate =4.5%, Nper=12, Pv=-4.5)
		Balance of investment as on Dec,31,2024	$7.63billion
					0
			Clipboard Font Alignment Number Styles Lells H6 : * fac =FV(H4,45,-43) A B C D E F H J K L M N Pv Rate Nper FV Sales Price on Jan1,1701 Semi annual interest rate=(8/2)% Number of semiannual Period Balance of investment as on Dec, 31,2018| $37 4% 636 (318 years*2) $2,520,028,881,077 (Using FV function of excel with Rate=4%, Nper=636, Pv=-37) Clipboard Font Alignment Number Styles Cells Editin H13 : * ~ fic =FV(H11,412,--10) A B C D E F | K L M N Pv Rate Nper Sales Price on Jan1,1701 $37 Semi annual interest rate=(8/2)% 4% Number of semiannual Period 636 (318 years*2) Balance of investment as on Dec,31,2018 $2,520,028,881,077 (Using FV function of excel with Rate =4%, Nper=636, Pv=-37) Balance of investment as on Dec 31, 2018 $2520 billion FV PV Rate Nper Sales Price on Jan1,1701 Semi annual interest rate=19/2)% Number of semiannual Period Balance of investment as on Dec, 31,2018 $37 4.5% 636 (318 years*2) $53,230,733,226,976 (Using FV function of excel with Rate =4.5%, Nper=636, Pv=-37) FV H21 x fc =FV(H19,H20,-H18) 2 A B C D E F H J K L M N (Using FV function of excel with Rate =4.5%, Nper=636, Pv=-37) Balance of investment as on Dec 31, 2018 Balance of investment as on Dec, 31, 2018 $53,230,733,226,976 $53,231 billion 3 INTEREST RATE COMPOUNDED QUARTERLY Pv Rate Nper FV Sales Price on Jan1,1701 Quarterly interest rate=(8/4)% Number of QuarterlyPeriod Balance of investment as on Dec 31, 2018 Dalance of invortmontaron Dor 21 2019 $37 2% 1272 (318 years*4) | $3,218,253,166,433 (Using FV function of excel with Rate =2%, Nper=1272, Pv=-37) 221 billion Clipboard Font Alignment Number Styles Cells Editing H27 : fic =FV(H25,H26,-H24) A B C D E I J K L M N Balance of investment as on Dec 31, 2018 $53,231 billion 3 INTEREST RATE COMPOUNDED QUARTERLY $37 2% Pv Rate Nper FV Sales Price on Jan1,1701 Quarterly interest rate=(8/4)% Number of Quarterly Period Balance of investment as on Dec, 31,2018 Balance of investment as on Dec, 31, 2018 1272 (318 years*4) $3,218,253,166,433 (Using FV function of excel with Rate=2%, Nper=1272, Pv=-37) $3218billion Pv Rate Nper FV Sales Price on Jan1,1701 Quarterly interest rate=19/4)% Number of Quarterly Period Balance of investment as on Dec 31, 2018 $37 2.250% 1272 (318 years*4) $72,433,678,349,482 Using FV function of excel with Rate =2.25%%, Nper=1272, Pv=-37 Clipboard Font Alignment M Number Styles Cells Editing H34 : X fc =FV(H32,433,-431) A B C D E F I J K L M N O H $3218billion Balance of investment as on Dec, 31, 2018 Pv Rate Nper FV Sales Price on Jan1,1701 Quarterly interest rate=(9/4)% Number of Quarterly Period Balance of investment as on Dec 31, 2018 Balance of investment as on Dec 31, 2018 $37 2.250% 1272 (318 years*4) $72,433,678,349,482 (Using FV function of excel with Rate = 2.25%, Nper=1272, Pv=-37) $72,434 billion $4.5 billion PV Rate Nper FV 9% Balance as on December 31, 2018 Annual interest rate Number of annual Period Balance of investment as on Dec 31, 2024 6 (2024-2018) $7.55 Billion (Using FV function of excel with Rate =9%, Nper=6, Pv=-4.5)

Clipboard Font Alignment Number Styles Lells H6 : * fac =FV(H4,45,-43) A B C D E F H J K L M N Pv Rate Nper FV Sales Price on Jan1,1701 Semi annual interest rate=(8/2)% Number of semiannual Period Balance of investment as on Dec, 31,2018| $37 4% 636 (318 years*2) $2,520,028,881,077 (Using FV function of excel with Rate=4%, Nper=636, Pv=-37)

Clipboard Font Alignment Number Styles Cells Editin H13 : * ~ fic =FV(H11,412,--10) A B C D E F | K L M N Pv Rate Nper Sales Price on Jan1,1701 $37 Semi annual interest rate=(8/2)% 4% Number of semiannual Period 636 (318 years*2) Balance of investment as on Dec,31,2018 $2,520,028,881,077 (Using FV function of excel with Rate =4%, Nper=636, Pv=-37) Balance of investment as on Dec 31, 2018 $2520 billion FV PV Rate Nper Sales Price on Jan1,1701 Semi annual interest rate=19/2)% Number of semiannual Period Balance of investment as on Dec, 31,2018 $37 4.5% 636 (318 years*2) $53,230,733,226,976 (Using FV function of excel with Rate =4.5%, Nper=636, Pv=-37) FV

H21 x fc =FV(H19,H20,-H18) 2 A B C D E F H J K L M N (Using FV function of excel with Rate =4.5%, Nper=636, Pv=-37) Balance of investment as on Dec 31, 2018 Balance of investment as on Dec, 31, 2018 $53,230,733,226,976 $53,231 billion 3 INTEREST RATE COMPOUNDED QUARTERLY Pv Rate Nper FV Sales Price on Jan1,1701 Quarterly interest rate=(8/4)% Number of QuarterlyPeriod Balance of investment as on Dec 31, 2018 Dalance of invortmontaron Dor 21 2019 $37 2% 1272 (318 years*4) | $3,218,253,166,433 (Using FV function of excel with Rate =2%, Nper=1272, Pv=-37) 221 billion

Clipboard Font Alignment Number Styles Cells Editing H27 : fic =FV(H25,H26,-H24) A B C D E I J K L M N Balance of investment as on Dec 31, 2018 $53,231 billion 3 INTEREST RATE COMPOUNDED QUARTERLY $37 2% Pv Rate Nper FV Sales Price on Jan1,1701 Quarterly interest rate=(8/4)% Number of Quarterly Period Balance of investment as on Dec, 31,2018 Balance of investment as on Dec, 31, 2018 1272 (318 years*4) $3,218,253,166,433 (Using FV function of excel with Rate=2%, Nper=1272, Pv=-37) $3218billion Pv Rate Nper FV Sales Price on Jan1,1701 Quarterly interest rate=19/4)% Number of Quarterly Period Balance of investment as on Dec 31, 2018 $37 2.250% 1272 (318 years*4) $72,433,678,349,482 Using FV function of excel with Rate =2.25%%, Nper=1272, Pv=-37

Clipboard Font Alignment M Number Styles Cells Editing H34 : X fc =FV(H32,433,-431) A B C D E F I J K L M N O H $3218billion Balance of investment as on Dec, 31, 2018 Pv Rate Nper FV Sales Price on Jan1,1701 Quarterly interest rate=(9/4)% Number of Quarterly Period Balance of investment as on Dec 31, 2018 Balance of investment as on Dec 31, 2018 $37 2.250% 1272 (318 years*4) $72,433,678,349,482 (Using FV function of excel with Rate = 2.25%, Nper=1272, Pv=-37) $72,434 billion $4.5 billion PV Rate Nper FV 9% Balance as on December 31, 2018 Annual interest rate Number of annual Period Balance of investment as on Dec 31, 2024 6 (2024-2018) $7.55 Billion (Using FV function of excel with Rate =9%, Nper=6, Pv=-4.5)