Multiple Choice
Which of the following captures the main factor to consider when refinancing a loan at a lower interest rate?
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7. Receivables and Investments
Introduction to Investments in Securities
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Which one of the following sets of cash flows best fits the description of an ordinary annuity?
A
Equal payments made at the end of each period for a fixed number of periods.
B
Unequal payments made at irregular intervals.
C
A single lump-sum payment made at the end of the investment period.
D
Equal payments made at the beginning of each period for a fixed number of periods.
Verified step by step guidance1
Understand the definition of an ordinary annuity: It consists of equal payments made at the end of each period for a fixed number of periods.
Analyze the options provided in the problem to determine which one matches the definition of an ordinary annuity.
Option 1: Equal payments made at the end of each period for a fixed number of periods. This matches the definition of an ordinary annuity.
Option 2: Unequal payments made at irregular intervals. This does not fit the definition of an ordinary annuity because the payments are not equal and not made at regular intervals.
Option 3: A single lump-sum payment made at the end of the investment period. This does not fit the definition of an ordinary annuity because it involves only one payment, not a series of equal payments. Option 4: Equal payments made at the beginning of each period for a fixed number of periods. This describes an annuity due, not an ordinary annuity.
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