Question

Aaron is considering an investment that will pay $7,500 a year for five years, starting one year from today. This is an example of: a. a set of unequal cash flows.
b. an ordinary annuity.
c. a perpetuity.
d. an annuity due.

Answer 1

Answer:

This is an example of a

b. an ordinary annuity.

Explanation:

Aaron's cash inflows of $7,500, which he receives at the end of the year, is an ordinary annuity because it comprises a series of equal payments receipts received over a fixed length of time, and it occurs at the end of the year.  If Aaron receives the series of payments at the beginning of each period and not at the end, it will be described as an annuity due.  If Aaron receives the series of payment indefinitely, it is called a perpetuity.