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    Comparing lump sum payment and life time annuity

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    Upon retirement, you are offered a choice between a $250,000 lump sum payment or a lifetime annuity of $51,200. If you expect to live for 15 years after retirement, at what required rate of return would you be indifferent between the two alternatives?

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    Lump sum payment is $250,000.
    I will be indifferent for both choices if PV of annuity for 15 years is same as Lump sum payment.

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    Solution Summary

    Solution describes the steps needed for comparing two alternatives of a lump sum payment and life time annuity. It determines at what rate of return a person can be indifferent to both alternatives.