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17 March, 10:28

Mario won the lottery and is receiving payments of $1,521,875 a year for the next 19 years. However, he has decided to sell this income stream and has been offered $9,968,843 for the remaining lottery payments. What is the discount rate used by the potential buyer?

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  1. 17 March, 11:58
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    Solution:

    The calculation of interest rates using the financial calculator for these inputs;

    PV = - $9,968,843;

    PMT = $1,521,875;

    N = 19;

    FV = 0;

    CPT I/Y = 13.9999% or approximately 14%

    The discount rate used by the potential buyer is approximately 14%
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Home » Business » Mario won the lottery and is receiving payments of $1,521,875 a year for the next 19 years. However, he has decided to sell this income stream and has been offered $9,968,843 for the remaining lottery payments.
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