The correct answer is: A. Equal cash flows at equal time intervals forever.
An ordinary annuity is a series of equal cash flows that are paid or received at regular intervals for a specific period of time. The cash flows can be in the form of payments or receipts, and the time intervals can be daily, weekly, monthly, quarterly, semi-annually, or annually.
An ordinary annuity is a type of annuity that is paid or received at the end of each period. This is in contrast to an annuity due, which is paid or received at the beginning of each period.
Ordinary annuities are often used to fund retirement plans or to save for other long-term goals. They can also be used to provide income for people who are retired or who are unable to work due to illness or disability.
The value of an ordinary annuity is determined by the amount of each payment, the number of payments, the interest rate, and the time period. The higher the interest rate, the higher the value of the annuity. The longer the time period, the higher the value of the annuity.
Ordinary annuities can be purchased from insurance companies or from banks. They can also be created by investing in a mutual fund or exchange-traded fund that invests in annuities.
Here is a brief explanation of each option:
- Option A: Equal cash flows at equal time intervals forever. This is the definition of an ordinary annuity.
- Option B: Equal cash flows at equal time intervals for a specific time period. This is the definition of a finite annuity.
- Option C: Lumpy cash flows at equal time intervals forever. This is not a type of annuity.
- Option D: Lumpy cash flows at equal time intervals for a specific time period. This is the definition of a series of payments.