Which one of the following best defines an annuity? a) A stream of decreasing payments occurring...
Which one of the following best defines an annuity?
a) A stream of decreasing payments occurring at regular intervals for a fixed period of time
b) A level stream of payments occurring at equal time intervals
c) A series of equal payments occurring at random intervals over a fixed period of time
d) A stream of increasing annual dividend payments over an infinite period of time
e) A level stream of payments occurring at random intervals for an infinite period of time.
Homework Answers
Annuity is a stream of payments at equal time intervals (months, year etc). The amount of periodical payments could be equal or varying at specified rate. The time horizon of such periodical payments could be fixed or indefinite.
Hence the option b 'A level stream of payments occurring at equal time intervals' best defines an annuity.
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