A best-selling author decides to cash in on her
latest novel by selling the rights to the book’s royalties for the next six
years to an investor. Royalty payments
arrive once per year, starting one year from now. In the first year, the author expects
$400,000 in royalties, followed by $300,000, then $100,000, then $10,000 in the
three subsequent years. If the investor
purchasing the rights to royalties requires a return of 7% per year, what
should the investor pay?