Question

You just won the Johto Pokemon lottery and won 120 million pokecoins! (Current foreign exchange rate is 1 pokecoin = 1 US dollar). You will get paid 1 million pokecoins per month for the next 10 years – but you want the organizers to consider if you could take a one-time payout of a lesser amount. The organizers of the lottery are puzzled and ask why you would want to do it that way and what kind of amount were you thinking? You don’t have to have a very exact number, but more a general ballpark number – the lottery organizers want to understand why it may or may not make sense. They will also include one Magicarp. Whasamata, you don’t like Magicarp?

Answer 1

There are following reasons to why I want money in one go

1) If I get the money in one go, I can invest in a project of my choice in other words there will not be any opportunity cost.

2) Today we know we can convert Pokecoins to US doller but in future we do not know whether Pokecoins will be convertible or not , also today 1 pokecoins = 1 USD but in future it may go to 5 pokecoins=1 doller we do not know it may depreciate much more.

As far as amount is concerned like what amount you should ask them it depends upon the interest rate or discount rate for example if you want to have a return of 12% per annum or interest rate in market is 12% per annum then interest rate per month will be 1% then we have to calculate the present value of all the cash flows which is 1 million for 120 periods.

…...........

in this case it will turn out to be 69.7 million , depend on the interest rate we will arrive at the different amount

and as far as other add on benefits like Magicarp is concerned it depends upon individual choice like value for one thing is different to different people.