Question

What is an example of a lump sum payment,annuity, and perpetuity? Which type of payment is most common in your estimation?

Answer 1

Lumpsum payment is a payment received/paid immediately for a certain amount. Example: You receive $10000 immediately.

Annuity is a series of equal payments received/paid over a certain period. Example: You receive $1000 per year for 10 years

Perpetuity is a payment received/paid forever. Example: You receive $1000 per year forever.

The lumpsum payment is most common as most of the times the amount is received immediatly. Annuity is seen in retirement plans.