Assuming equal time intervals between the payments and a constant rate of return,which of the following cash flow patterns represents an annuity? $\begin{array}{lllllllll}
\text { Year } 1& \text { Year } 2& \text { Year } 3 & \text { Year }4& \text { Year } 5 & \text { Year } 6
\end{array}$
A.$\begin{array}{lllllllll}
\$ 1,000 & \$ 1,000 & \$ 1,000 & \$ 1,000 & \$ 1,000 & \$ 1,000
\end{array}$
B.$ \begin{array}{llllllll}
\$ 500 & &&\$ 0 &&& \$ 500 & &\$ 500&& \$ 500 && \$0
\end{array}$
C.$ \begin{array}{llllllll}
\$ 100 &&& \$ 200 && \$ 300 && \$ 400 && \$500&&\$600
\end{array}$

Question

Assuming equal time intervals between the payments and a constant rate of return,which of the following cash flow patterns represents an annuity? $\begin{array}{lllllllll}
\text { Year } 1& \text { Year } 2& \text { Year } 3 & \text { Year }4& \text { Year } 5 & \text { Year } 6
\end{array}$
A.$\begin{array}{lllllllll}
\$ 1,000 & \$ 1,000 & \$  1,000 & \$  1,000 & \$ 1,000 & \$ 1,000
\end{array}$
B.$ \begin{array}{llllllll}
\$ 500 & &&\$  0 &&& \$  500 & &\$ 500&& \$ 500 && \$0
\end{array}$
C.$ \begin{array}{llllllll}
\$ 100 &&& \$  200 && \$  300 && \$ 400 && \$500&&\$600
\end{array}$

Quizplus · Accepted Answer

An annuity is defined as a series of equal payments made at equal intervals of time. Option A, with $1,000 paid every year for 6 years, fits this definition perfectly.