Difference between Lump Sum and Annuity Problem

There are several real life problems or scenarios in which time value of money concept can be applied to determine future value or present value of an amount. Some problem involves lump sum, some involves annuity and some involves an annuity due. There are some difference between lump sum and annuity problem. It is because; an annuity spread payouts over a long-term period, while lump sum payments provide the full payout amount to the recipient at once (Lasser, 2009).

In annuity problem, a fixed amount is paid to annuity holder on regular basis, whereas in lump sum problem, a fixed amount is paid only one time at the end contract or investment period. The frequency of payouts to receiver is the main difference between a lump sum and an annuity problem. It is because; generally lump sum problem uses single payment strategy to payout the amount to receiver, while installment option uses in annuity problem to payout return (Lasser, 2009).

An annuity exactly is a contract between an individual and company that is designed to provide guaranteed income at regular intervals for a specified period of time.  Frequently, annuities are requirement saving vehicles that are used for retirement planning

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