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Darius Rucker is leaving Theta Tech after several years. During his time at Theta he accumulated a deferred payroll benefit. He must choose between a lump-sum distribution or annual payments over the next 10 years, with his first payment deposited today. He believes he can invest any sum received at 4.95% for the next ten years. The annual payments are $20,311 and the lump-sum distribution is $165,000. To the nearest dollar, the more valuable choice is the Lump Sum distribution.
What is Lump Sum Payments?
A lump-sum payment is a sum of money that is frequently paid in one major payment rather than in several smaller ones.
In relation to loans, it is often referred to as "bullet repayment." They are sometimes connected to pension plans and other types of retirement accounts, such 401(k), when retirees opt for a smaller upfront lump-sum payment over a larger amount distributed gradually. These are frequently paid out when debentures occur.
What are Annual Payments?
Annual payments are sums of money given to someone or something for the duration of an entire year, or sums of money given to someone or something for the duration of an entire year.
Annual Payments are the payments paid by the City under this Support Agreement as described in Section 4.1(a), which are equivalent to half of the principal and interest payments due on the Bond for each Fiscal Year.
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