Question:
If a person were to win a $30 million lottery (or settlement, etc) and have the option to take a $15 million lump payment or $1 million per year for 30 years, which is better?
What is the appropriate discount rate to use when figuring the Net Present Value of the $1 million annual cash flow?
Is there some sort of indifference point between the two?
(Unfortunately this is hypothetical)
Answer:
If you assume that you will be able to invest the money at a 10% annual return, you will at the end of the 30 years have $164M with option #2. If you pick option #1, you will have $240M.
To convert to present value, I would discount that future value by expected inflation rates, you can use 3%.
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