Which term describes a constant sum of money paid or received each period for a given number of periods?

Which term describes a constant sum of money paid or received each period for a given number of periods?

• A. A stream of payments that continues forever.
• B. A single payment at a fixed point in time.
• C. A constant sum of money paid or received each period for a given number of periods.
• D. The total net cash inflow from a project.

Answer: (C)

The main idea here is an annuity. An annuity is a regular series of equal payments made at fixed intervals for a finite number of periods. That description matches a constant amount paid or received each period for a specified number of periods. Think of the other terms to see why they don’t fit as well: a stream of payments that continues forever is a perpetuity, not limited to a set number of periods. A single payment at a fixed point in time is a lump-sum, not a series. Total net cash inflow from a project refers to the overall sum of all inflows and outflows, not the pattern of periodic payments.

The main idea here is an annuity. An annuity is a regular series of equal payments made at fixed intervals for a finite number of periods. That description matches a constant amount paid or received each period for a specified number of periods.

Think of the other terms to see why they don’t fit as well: a stream of payments that continues forever is a perpetuity, not limited to a set number of periods. A single payment at a fixed point in time is a lump-sum, not a series. Total net cash inflow from a project refers to the overall sum of all inflows and outflows, not the pattern of periodic payments.