Corporate Finance: A Focused Approach (mindtap Course List)
Corporate Finance: A Focused Approach (mindtap Course List)
7th Edition
ISBN: 9781337909747
Author: Michael C. Ehrhardt, Eugene F. Brigham
Publisher: South-Western College Pub
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Chapter 4, Problem 3Q

An annuity is defined as a series of payments of a fixed amount for a specific number of periods. Thus, $100 a year for 10 years is an annuity, but $100 in Year 1, $200 in Year 2, and $400 in Years 3 through 10 does not constitute an annuity. However, the entire series does contain an annuity. Is this statement true or false?

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Which of the following statements is CORRECT?   The cash flows for an annuity may vary from period to period, but they must occur at regular intervals, such as once a year.   The cash flows for an annuity due must all occur at the beginning of the periods.   The cash flows for an ordinary annuity occur at the beginning of the periods.   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 an ordinary annuity.   If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity.
Which of the following statements is most likely correct? OA perpetuity is an infinite stream of payments in varying amounts occurring at regular time intervals. O The cash flows for an annuity can vary in amounts, and they can occur at irregular intervals. O Time periods that can be used in the time value of money computations are not restricted to months and years. O An annuity due has the first payment occurring one period from now, while an ordinary annuity has the first payment occurring now.
The difference between an ordinary annuity and an annuity due is that each of the payments of the annuity due earns interest for one additional year (period). * True False
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