MANAGEMENT

Detailed explanation-1: -The cash flows occur at the end of years 1 through 5. And the first cash flow occurs at the end of year 1. Most appraisal problems involve ordinary annuities; that is payments are assumed to occur at the end of the period.

Detailed explanation-2: -In ordinary annuities, payments are made at the end of each period. With annuities due, they’re made at the beginning of the period. The future value of an annuity is the total value of payments at a specific point in time. The present value is how much money would be required now to produce those future payments.

Detailed explanation-3: -In contrast, an ordinary annuity generates payments at the end of the period.

Detailed explanation-4: -The annuity period is the time when an annuity actually pays out to an annuity holder through annuitization. The annuity period can last a specific amount of time, or it can last for the rest of a person’s life.

Detailed explanation-5: -With ordinary annuities, the payments come at the end of each payment period. With annuities due, the payment comes at the beginning.