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 requires that all cash flows occur at the beginning of the periods, while an ordinary annuity (or deferred annuity) requires that all cash flows occur at the end of the periods. A variable annuity refers to a situation where the size of the cash flows vary from period to period, regardless of whether they occur at the beginning or end of the periods. The mere occurrence of a series of unequal cash flows at regular intervals does not necessarily make it an annuity, as there are many other types of cash flow patterns that could fit this description.

Which of the Following Statements Is CORRECT