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Would you rather receive $1,000 today or $100 every year into perpetuity?
Answer
Depends on the discount rate. PV of a perpetuity = Cash Flow / Rate = $100 / r. Set equal to $1,000: $100/r = $1,000 → r = 10%. If your discount rate is less than 10%, take the $100/year perpetuity (worth more than $1,000 in PV). If greater than 10%, take the $1,000 today. At exactly 10%, you're indifferent.
Why interviewers ask this
Classic time-value-of-money question. Tests whether you can frame the comparison via the perpetuity formula. Real-world: the answer depends on the safe rate you can earn — at ~5% Treasury yields, the $100 perpetuity is worth $2,000 and far better than $1,000 today.
time value of moneyperpetuity