Chapter2-INK - Bobby Bos deferred salary Several years ago,...

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Bobby Bo’s deferred salary Several years ago, Bobby Bonilla, then with the New York Mets, had his last contract year salary of $5.9 million deferred for 15 years. Immediately at the end of this 15 year deferral period, Bobby receives the first of 15 equal annual payments. What annual payment will Bobby Bonilla receive if the interest rate is 8% compounded annually?
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The Time Value of Money Non-annual Interest Compounding and Discounting 4
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Nominal rate (I NOM ) – also called the quoted or stated rate or APR. An annual rate that ignores compounding effects. I NOM is stated in contracts. Periods must also be given, e.g. 8% Quarterly or 8% Daily interest. Periodic rate (I PER ) – amount of interest charged each period, e.g. monthly or quarterly. I PER = I NOM / M, where M is the number of compounding periods per year. For example, M = 4 for quarterly and M = 12 for monthly compounding. 5
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This note was uploaded on 03/04/2009 for the course FIN 221 taught by Professor Dyer during the Spring '08 term at University of Illinois at Urbana–Champaign.

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Chapter2-INK - Bobby Bos deferred salary Several years ago,...

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