Which of the following best describes an ordinary annuity in the context of time value of money equations?

• A. A single lump-sum payment made at the beginning of the investment period.
• B. A series of equal payments made at the end of each period for a specified number of periods.
• C. A series of equal payments made at the beginning of each period for a specified number of periods.
• D. A series of unequal payments made at irregular intervals.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of an ordinary annuity. An ordinary annuity refers to a series of equal payments made at the end of each period for a specified number of periods. This is a key distinction from other types of annuities, such as an annuity due, where payments are made at the beginning of each period.
2. Step 2: Analyze the options provided in the problem. The options describe different types of payment structures, and you need to identify which one aligns with the definition of an ordinary annuity.
3. Step 3: Eliminate incorrect options. For example, a single lump-sum payment made at the beginning of the investment period does not describe an ordinary annuity, as it involves only one payment rather than a series of payments.
4. Step 4: Compare the remaining options. A series of equal payments made at the beginning of each period describes an annuity due, not an ordinary annuity. Similarly, a series of unequal payments made at irregular intervals does not fit the definition of an ordinary annuity.
5. Step 5: Confirm the correct answer. Based on the definition, the correct description of an ordinary annuity is 'A series of equal payments made at the end of each period for a specified number of periods.'