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Time is Value for Money

**Time is Value for Money**

This question can be well addressed by understanding the time value for money for both options. The idea of time values for money is that 10 dollars in hand today are worth more than 10 dollars promised in the future because money can potentially gain interest (value).

The present value of money implies the current values of the amount of money that will be received in the future. From the two scenarios given, we can assume that the difference in value for many is actually 50 million USD for years 4 and 5. This so because, in years 1, 2, and 3, the rising basketball star would get 40 million USD for both options. However, in option 2, he is getting 30 million now as the signing bonus. To calculate the PV and FV, we need to have a rate of return. Present Value =FV/(1=r) t. In the second option, future value (FV) of money =present Value (1=Rate of return) t.

However, since no risk...

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