Question

An annuity in which the periodic payment begin on a fixed date and continue forever is called

• A. Sinking Fund
• B. Perpetuity
• C. Coupon payment
• D. Bond

Hint:

The word "perpetuity" comes from "perpetual," which means everlasting or never-ending. This linguistic link can help you remember its definition in finance.

Answer 1

The Correct Option is B

Step 1: Concept Review:
This question requires understanding financial instrument definitions, specifically concerning annuities. An annuity is a series of uniform payments made at consistent intervals.
Step 2: Term Definitions:
- Sinking Fund: A company-established fund for accumulating money over time to repay debts or bonds. It involves fixed periodic payments over a set term to reach a target future amount and has a defined end date.
- Perpetuity: An annuity type with an indefinite, perpetual stream of cash flows. It lacks an end date, aligning with the question's description.
- Coupon Payment: The regular interest payment from a bond issuer to a bondholder. This is part of a bond's structure and typically ceases upon bond maturity, not an annuity name itself.
- Bond: A debt instrument representing a loan from an investor to an entity (corporate or governmental) for a specified term at a fixed or variable interest rate. Bonds have a fixed maturity date.
Step 3: Conclusion:
An annuity with unending payments is termed a perpetuity.