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Financial bleg


Can somebody loan me a dime their financial expertise?

Problem: Contract is signed between A and B in Year One, requiring B to Pay A the following sums upon performance of contract two years later:

Year Three: $110,000

Years Four through Seven: $100,000 in each year

Year Eight: $90,000

Assume probability of both performance and payment upon performance is 100%. Assume that current interest rates at signing are around 2.5% for three-year treasuries and 2.8% for ten-year treasuries and high-grade municipal bonds.

Question: When evaluating A’s net worth at signing, what current total value should be assigned to the $600,000 in total payments scheduled to be received in years three through eight?


UPDATE: Thanks to everyone for the interesting and informative replies. To clarify a couple of things, this is regarding a historical transaction rather than something contemporary, and I appreciate there isn’t any definitive answer, given the different definitions of what one might mean by the contract’s actual value at the time of signing.

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