When the present value of an annuity is calculated as of two or more periods before the payment of the first cash flow, the annuity is
A) an ordinary annuity
B) a deferred ordinary annuity
C) an annuity due
D) a simple annuity

Question

Quizplus · Accepted Answer

When the present value of an annuity is calculated as of two or more periods before the payment of the first cash flow, it is a deferred annuity. Since the annuity is not due immediately, it is not an annuity due. The fact that it is a regular or equal series of cash flows makes it an annuity, and the fact that it is not subject to any unusual or staggered payments makes it a simple annuity. Therefore, the correct answer is a deferred ordinary annuity, which has a time lag between when it is purchased or established and when the cash flows begin.

When the Present Value of an Annuity Is Calculated as of Two