A firm plans to make investments of $5,000 for the next 10 years, paying the amount at the end of each year. This form of cash flow pattern represents a(n) _____.
A)lump-sum payment
B)uneven cash flow stream
C)annuity due
D)ordinary annuity
E)immediate annuity

Question

A firm plans to make investments of $5,000 for the next 10 years, paying the amount at the end of each year. This form of cash flow pattern represents a(n) _____. 
A)lump-sum payment
B)uneven cash flow stream
C)annuity due
D)ordinary annuity
E)immediate annuity

Quizplus · Accepted Answer

An ordinary annuity involves making equal payments at the end of each year for a specific period of time, which is exactly what the firm plans to do. A lump-sum payment would refer to a single payment made at the beginning or end of the investment period, and an uneven cash flow stream would involve payments that are not equal in size or frequency. An annuity due would involve payments made at the beginning of each year instead of the end, and an immediate annuity would involve making a lump sum payment in exchange for a series of future payments.

A Firm Plans to Make Investments of $5,000 for the Next