Sport Management Ch. 4

Question 1

The purchasing power of a dollar is referred to as its….

Answer 1

Real Value

Question 2

In its policies regarding deferred salaries, which of the following leagues has stated that deferred payments must be placed by the team in a league fund for administration and future disbursement?

Answer 2

National Football League

Question 3

The owners of which franchise agreed to a perpetuity when they negotiated to fold their team after the ABA and NBA merger.

Answer 3

St. Louis Spirits

Question 4

Which of the following is today’s value of a future cash flow?

Answer 4

Present Value

Question 5

What is a measure of risk or uncertainty of time?

Answer 5

Discount Rate

Question 6

Which of the following is calculated by investing changes in the consumer price index?

Answer 6

Inflation Rate

Question 7

A series of equal payments or receipts made ay any interval of time is an….

Answer 7

Annuity

Question 8

Which of the following is a single cash flow per year forever into the future?

Answer 8

Perpetuity

Question 9

What is the future value of $1000 invested that accumulates 4% interest for 5 years, compounded annually? (Use Future Value Annuity Equation)

Answer 9

$1,216.70

Question 10

What is the future value of an investment of $1000 every year that accumulates 4% interest for 5 years? (Use Future value Equation)

Answer 10

$5,416.30

Question 11

A Sport organization has a commitment from three different sponsors. Determine the present value for each. Which sponsor is giving you the best deal?

A) Sponsor A is committing a $17,000 payment in 2 years with 3% discount
B) Sponsor B is committing a $20,000 payment in 3 years with 5% discount
C) Sponsor C is committing a $30,000 payment in 6 years with 9% discount

Answer 11

A) $16,024.20
B) $17, 276
C) $17,889
Sponsor C is giving the best offer

Question 12

If an investor commits $4,500 to an IRA each year for 30 years and receives 6% interest, what will her total investment be worth at the end of 30 years? (Use FVA Equation)

Answer 12

$355,761.90

Question 13

What is the difference between $5,000 invested fort en years at 3% interest, compounded semi-annually; and at 8% interest, compounded quarterly?

Answer 13

$4,274.75 (if confused refer to question 13 on chapter 4 quiz)

Question 14

Explain the difference between simple and compound interest. (short answer Q)

Answer 14

Simple interest is calculated only on the original principal amount, while compound interest is calculated on the principal plus any interest already earned, meaning it grows faster over time.

Question 15

Explain the concepts of inflation. How does inflation affect saving and investing? (short answer Q)

Answer 15

Inflation is the loss of moneys real value (its purchasing power). It affects savings and investments by decreasing the value.

Question 16

From a teams/owners perspective, list one advantage and disadvantage of deferring salaries.

Answer 16

Advantage: from an athletes perspective would be deferring a team salaries to receive it in the future, the risk is hoping the future value of the dollar increases.

Disadvantage: from an athletes perspective its having to wait to get paid if the team deferred to hold the money.