1. What is a Lump Sum vs Monthly Payment Calculator?

Definition: This calculator determines the equivalent lump sum value of a series of monthly payments considering a specific interest rate.

Purpose: It helps compare the value of receiving money as monthly payments versus a single lump sum, considering the time value of money.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• Lump Sum — Present value equivalent of monthly payments ($)
• Monthly — Payment amount per month ($/month)
• r — Monthly interest rate (decimal)
• n — Number of months

Explanation: The formula discounts each future payment back to present value using the specified interest rate.

3. Importance of Lump Sum Calculation

Details: Understanding the time value of money helps in making informed financial decisions between receiving payments over time versus upfront.

4. Using the Calculator

Tips: Enter the monthly payment amount, interest rate in decimal form (e.g., 5% = 0.05), and number of months. All values must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between lump sum and monthly payments?
A: A lump sum is a single payment now, while monthly payments are spread over time. The calculator shows their equivalent value.

Q2: How is the interest rate applied?
A: The rate should be the monthly rate (annual rate ÷ 12) in decimal form (5% = 0.05).

Q3: What if the interest rate is zero?
A: With 0% interest, the lump sum is simply monthly payment × number of months.

Q4: When would this calculation be useful?
A: Useful for comparing settlement offers, pension options, lottery payouts, or any periodic payment vs lump sum decision.

Q5: Does this account for taxes or inflation?
A: No, this is a basic time-value calculation. For precise comparisons, consult a financial advisor.