What is a series of equal payments to be received at the end of each period, for a finite period of time, called?

Question

BlackTom AI · Accepted Answer

An ordinary annuity is a series of equal payments made at the end of each period for a specified (finite) number of periods, so the correct choice is a. An ordinary annuity.

1. Relevant knowledge points and concepts
- An annuity is a sequence of equal cash flows occurring at regular intervals.
- Ordinary annuity (also called an annuity in arrears): payments occur at the end of each period.
- An annuity due: payments occur at the beginning of each period.
- Perpetuity: equal payments that continue forever (no finite end).
- “Cash cow” is an informal business term, not the technical name for a timed series of payments.

2. Step-by-step reasoning
- The question specifies three key attributes: equal payments, received at the end of each period, and for a finite period. These three attributes match the definition of an ordinary annuity exactly.
- Because payments occur at the end of each period, it is not an annuity due (which requires beginning-of-period payments).
- Because the payments stop after a finite number of periods, it is not a perpetuity (which never ends).
- “Cash cow” does not match the technical definition given.

3. (Formula context / intermediate steps)
- The present value (PV) of an ordinary annuity with payment PMT, interest rate r per period, and n periods is:
  PV = PMT × [1 − (1 + r)^−n] / r.
  This finite sum formula reinforces that an ordinary annuity has a fixed number of payments n (finite).

4. Why the correct answer is correct
- The definition directly matches: equal periodic payments, at period-ends, and finite duration → ordinary annuity.

5. Why other options are incorrect
- b. Perpetuity: payments continue forever (not finite).
- c. Cash cow: informal/business term, not the financial product described.
- d. Annuity due: payments at the beginning of periods, not at the end.

6. Conclusion
- Therefore, the correct answer is a. An ordinary annuity, which matches the provided answer.

What is a series of equal payments to be received at the end of each period, for a finite period of time, called?Single choice

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