Example 12 An Annuity Due as the Present Value of an Immediate Cash Flow Plus an Ordinary Annuity You are retiring today and must choose to take your retirement benefits either as a lump sum or as an annuity. Your company's benefits officer presents you with two alternatives: an immediate lump sum of $2 million or an annuity with 20 payments of $200,000 a year with the first payment starting today. The interest rate at your bank is 7 percent per year compounded annually. Which option has the greater present value? (Ignore any tax differences between the two options.) Example 12 An Annuity Due as the Present Value of an Immediate Cash Flow Plus an Ordinary Annuity You are retiring today and must choose to take your retirement benefits either as a lump sum or as an annuity. Your company's benefits officer presents you with two alternatives: an immediate lump sum of $2 million or an annuity with 20 payments of $200,000 a year with the first payment starting today. The interest rate at your bank is 7 percent per year compounded annually. Which option has the greater present value? (Ignore any tax differences between the two options.)