Question

Rudy has been awarded some money in a settlement. He has the option to take a lump sum payment of $200,000 or get paid an annuity of $1,000 per month for the next 25 years. Which is the better deal for Rudy, and by how much, assuming the growth rate of the economy is 2.75% per year?

Lump Sum: by $14,899.82

Lump Sum: by $43,535.88

Annuity: by $14,899.82

Annuity: by $43,535.88

Answer 1

Take the lump sum. Invested to hedge against inflation, you'll make more than 100k on it in 25 years, and that woudl be the difference.

Answer 2

The answer is Annuity: by $14,899.82