Negotiating a sports contract. Gusto Stick is a professional baseball player who has just become a free agent. His attorney begins negotiations with an interested team by asking for a contract that provides Gusto with an income stream given by
a. What is the accumulated future value of the offer, assuming an interest rate of 5%, compounded continuously?
b. What is the accumulated present value of the offer, assuming an interest rate of 5%, compounded continuously?
c. The team counters by offering an income stream given by
d. Gusto comes back with a demand for an income stream given by
e. Gusto signs a contract for the income stream in part (d) but decides to live on $500,000 each year, investing the rest at 5%, compounded continuously. What is the accumulated future value of the remaining income, assuming an interest rate of 5%, compounded continuously?
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