Stephanie and Greg were the first and second place winners in arecent contest sp

Question

Stephanie and Greg were the first and second place winners in arecent contest sponsored by A Lucky Duck. The first place winner isrequired to represent the company at numerous events for one yearin exchange for receiving a prize of $1,000 a year forever. Thesecond place winner is awarded a prize of $1,000 a year for 100years and has no commitments or future obligations to the firm. Theapplicable interest rate is 8 percent. Assuming these twoindividuals have perpetual lives, which person is really the topwinner in this contest and why?

Explanation / Answer

After 100 years, both people will have roughly $30 million (Iused http://www.moneychimp.com/calculator/compound_interest_calculator.htm,but you can also do it by PV/FV calculations). That meansthat each year, from then on, you will gain, from interest, atleast $2.4 million. Therefore, is it really worth the extra$1000 each year for spending that extra time in the beginning --no, probably not. You could have made money during that time,invested it, and made much more than $1000 in later years.
So the second person is the "winner"
Hope taht helps

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