Which of the following statements is CORRECT?
A) If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity.
B) The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.
C) If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.
D) The cash flows for an annuity due must all occur at the beginning of the periods.
E) The cash flows for an annuity may vary from period to period, but they must occur at regular intervals, such as once a year or once a month.

Question

Quizplus · Accepted Answer

An annuity due is a type of annuity where the cash flows occur at the beginning of each period. This is different from an ordinary (or deferred) annuity where the cash flows occur at the end of each period. Option A is incorrect because variable annuity refers to an annuity where the cash flow varies in amount rather than timing. Option B is incorrect because an ordinary annuity has cash flows occurring at the end of each period. Option C is incorrect because an annuity by definition has equal cash flows occurring at regular intervals, but the cash flows do not have to be equal. Option E is incorrect because the cash flows for an annuity should occur at regular intervals, but they do not have to be of the same amount.

Which of the Following Statements Is CORRECT