If a series of equal payments is paid regularly out of a bank account which earns a constant rate of interest, the ____ is the amount that must be in the bank at the beginning of the series to just fund all of the payments.
A)future value of an annuity due
B)present value of an annuity due
C)future value of an ordinary annuity
D)present value of an ordinary annuity
E)None of the above

Question

Quizplus · Accepted Answer

The present value of an ordinary annuity represents the amount needed at the beginning of the series to fund all of the payments at a given interest rate. The future value of an annuity due represents the total amount of the payments plus interest at the end of the series when payments are made at the beginning of each period. Therefore, option D is the correct choice.

If a Series of Equal Payments Is Paid Regularly Out