Final answer:
The present value of the contracts for the quarterback and the receiver is calculated by discounting their future annual payments at the given interest rate of 8%. These calculations help determine the contracts' worth in today's dollars.
Step-by-step explanation:
The calculation of the present value (PV) of the contracts signed by the quarterback and the receiver involves discounting their future payments at the given interest rate of 8%.
The PV for the quarterback's contract involves discounting an annuity of $2.6 million for 4 years. Using the present value formula for an annuity, the calculation would result in a PV that represents what the contract is worth at the current date, taking into account the time value of money.
For the receiver's contract, the calculation is slightly different because there is an immediate payment of $3 million, followed by an annuity of $2.5 million for 4 years. The initial payment of $3 million does not need discounting, as it's received at present. However, the remaining annual payments are discounted using the present value of an annuity formula to determine the total PV of the receiver's contract.
To answer the question, we would use the given information to calculate each of these present values to determine the worth of both contracts today. By doing so, we can compare contracts and understand them in terms of today's dollars, which is helpful for valuing future cash flows given a certain interest rate.