Problem:
Today is January 1, 2015. Your friend Joe has just signed a contract to play for the Oil Kings. He will receive $900,000 for 2015, $1,000,000 for 2016, $1,100,000 for 2017, and $1,200,000 for 2018. All payments are made at the beginning of the year. Assume 8% annual interest rate (EAR).
Required:
Question 1: What is the present value of his contract?
Question 2: If instead of increasing annual payments Leo wants equal dollar amount month-end cheques, how large is his monthly pay (assuming the present value remains the same)?
Note: Please explain comprehensively and give step by step solution.