# Why's it always better to choose a lump sum than periodic payments over time?

1. True or False? It is always better to choose a lump sum than periodic payments over time.

p. 519

1. T

Doesn't the answer depend on the amount of lump sum vs. periodic payments and inflation?

Or are the authors assuming that if lump sum = P, then you get n periodic payments of $$\frac{P}{n}$$ (for a total of $$n × \frac{P}{n}$$)? Then inflation will cause each P/n to be worth less.

• If the question did not provide more information, then you are correct in your doubts. For example, it is not better to choose a single lump sum of \$1 than monthly payments of \$100, so that the given statement is false. – Kenny LJ Jul 30 at 6:13
• +1 for @KennyLJ. My guess is that the author is assuming, as you said, the sum of periodic payment is equal to lump sum payment. – Art Jul 30 at 8:43
• The author probably also ignored the possibility of negative interest rates. Tssk. – Brian Romanchuk Jul 30 at 11:00