Which of the following is an example of an annuity?

• A. Receiving a single payment of \$5,000 after 5 years
• B. Receiving \$1,000 at the end of each year for 5 years
• C. Receiving \$1,000 at irregular intervals over 5 years
• D. Receiving varying amounts each year for 5 years

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of an annuity. An annuity is a series of equal payments made at regular intervals over a specified period of time. These payments can occur at the beginning or end of each interval, depending on whether it is an ordinary annuity or an annuity due.
2. Step 2: Analyze the first option: 'Receiving a single payment of \$5,000 after 5 years.' This is not an annuity because it involves only one payment rather than a series of equal payments.
3. Step 3: Analyze the second option: 'Receiving \$1,000 at the end of each year for 5 years.' This fits the definition of an annuity because it involves equal payments (\$1,000) made at regular intervals (end of each year) over a specified period (5 years).
4. Step 4: Analyze the third option: 'Receiving \$1,000 at irregular intervals over 5 years.' This is not an annuity because the payments are not made at regular intervals.
5. Step 5: Analyze the fourth option: 'Receiving varying amounts each year for 5 years.' This is not an annuity because the payments are not equal in amount.