There are two categories of cash flows: single cash flows, referred to as lump sums, and annuities. Based on your understanding of annuities, answer the following questions.

Which of the following statements about annuities are true? Check all that apply.

When equal payments are made at the beginning of each period for a certain time period, they are treated as ordinary annuities.

When equal payments are made at the beginning of each period for a certain time period, they are treated as an annuity due.

Annuities are structured to provide fixed payments for a fixed period of time.

An ordinary annuity of equal time earns less interest than an annuity due.

Which of the following is an example of an annuity?

A job contract that pays an hourly wage based on the work done on a particular day

A job contract that pays a regular monthly salary for three years

Ashley has a large and growing collection of animated movies. She wants to replace her old television with a new LCD model, so she has started saving for it. At the end of each year, she deposits $1,060 in her bank account, which pays her 12% interest annually. Ashley wants to keep saving for three years and then buy the newest LCD model that is available. Ashleys savings are an example of an annuity. How much money will Ashley have to buy a new LCD TV at the end of three years?

$3,040.33

$4,006.09

$3,576.86

$2,545.94

If Ashley deposits the money at the beginning of every year and everything else remains the same, she will save by the end of three years.