Appropriate discount rate for a bidder

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The Wall Street Journal reported that the winner of a Massachusetts State Lottery prize had the misfortune to be both bankrupt and in prison for fraud. The prize was $9,420,713 to be paid in equal installments of $495,827 at the end of each of the next 19 years. (There were 20 installments, but the winner had already received the first payment.) The bankruptcy court judge ruled that the prize should be sold off to the highest bidder and the proceeds used to pay off creditors.

If the appropriate discount rate for a bidder was 8.00% per year, how much should the bidder have been prepared to pay for the remaining 19 annual payments of $495,827?

Reference no: EM132245116

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