Question

The present value of an ordinary annuity is:

A) The amount that would be paid today in order to receive a series of unequal payments in the future

B) The amount that would be paid today in order to receive a series of equal payments in the future

C) The amount that would be paid in the future in order to receive a series of unequal payments leading up to that point

D) The amount that would be paid in the future in order to receive a series of equal payments leading up to that point

E) None of the above

Answer 1

B) The amount that would be paid today in order to receive a series of equal payments in the future

Step-by-step explanation:

Present value of a cashflow by itself is its dollar value today. An Ordinary annuity is a series of recurring equal cashflows ; they occur at the end of each period like at the end of the year, end of the month, end of each quarter etc. This is unlike an Annuity due whose recurring payments occur at the beginning of each period like beginning of the year, beginning of the month, beginning of each quarter etc.