Which term describes a finite series of equal payments made at regular intervals?

Which term describes a finite series of equal payments made at regular intervals?

• A. Perpetuity.
• B. Annuity.
• C. Payback period.
• D. Net present value.

Answer: (B)

A finite series of equal payments made at regular intervals is called an annuity. The payments are the same amount, occur at the same intervals, and there is a defined end after the last payment. If the series went on forever, it would be a perpetuity. The other terms describe different ideas: the payback period focuses on how long it takes to recover the initial investment, regardless of money value after that; net present value sums the discounted cash flows to assess profitability, not the pattern or length of the payments. In practice, annuities are valued using the time-value-of-money concept, with a formula that relates the payment amount, rate, and number of payments.

A finite series of equal payments made at regular intervals is called an annuity. The payments are the same amount, occur at the same intervals, and there is a defined end after the last payment. If the series went on forever, it would be a perpetuity. The other terms describe different ideas: the payback period focuses on how long it takes to recover the initial investment, regardless of money value after that; net present value sums the discounted cash flows to assess profitability, not the pattern or length of the payments. In practice, annuities are valued using the time-value-of-money concept, with a formula that relates the payment amount, rate, and number of payments.