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Question
Annuity where payments are made at the end of each payment period, i.e. 1st payment is made at the end of the 1st payment interval, and so on, is known as
Annuity where payments are made at the end of each payment period, i.e. 1st payment is made at the end of the 1st payment interval, and so on, is known as
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Solution
The correct options are
B Ordinary annuity
D Immediate annuity
Answer is Ordinary or Immediate Annuity.
- An ordinary annuity or immediate annuity is where payments are made at the end of each payment period, i.e. 1stpayment is made at the end of the 1st payment interval, and so on. Examples are repayment of car loans, house mortgage etc.
- A contingent annuity is one where the term depends upon some event whose occurrence is not fixed. An example is periodic payments of life insurance premiums which stop when the person dies.
- A perpetual annuity is an annuity whose term does not end, i.e. it extends till infinity. Thus there is no last payment; they go on forever. An example is freehold property, where you can earn rent in perpetuity.
B Ordinary annuity
D Immediate annuity
Answer is Ordinary or Immediate Annuity.
- An ordinary annuity or immediate annuity is where payments are made at the end of each payment period, i.e. 1stpayment is made at the end of the 1st payment interval, and so on. Examples are repayment of car loans, house mortgage etc.
- A contingent annuity is one where the term depends upon some event whose occurrence is not fixed. An example is periodic payments of life insurance premiums which stop when the person dies.
- A perpetual annuity is an annuity whose term does not end, i.e. it extends till infinity. Thus there is no last payment; they go on forever. An example is freehold property, where you can earn rent in perpetuity.
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