The Problem: You win the grand prize on a game show. You have the following choices: Option 1: $1-million dollars paid as a $25000 annuity every year over 40 years. Option 2: The present value of option 1 if the current interest rate is 4%, compounded annually. If you accept this option you receive the entire amount immediately, in one payment.

You accept Option 2, and invest your prize money with your own bank, in an annuity that will still pay you $25,000 every year. Your bank offers you 5% interest, compounded annually. Over 40 years how much more money would you have earned than if you accepted Option 1?