Banking Financial Awareness · Commerce Accountancy

Credit, Debt, and Finance

1,382 Questions

This topic covers essential concepts of credit, debt, and finance including bankruptcy, debt recovery, and financial acts. These questions are frequently asked in banking and IBPS exams. Test your knowledge of financial terminology and loan classifications.

Debt recovery actsBankruptcy filing proceduresFinancial classificationsMedium term financeCredit loss management

Credit, Debt, and Finance Questions

Multiple choice business mathematics and statistics insurance and annuity amount of an annuity annuities financial mathematics

Annuity, where the payments start after specified no. of periods, is known as

  1. Immediate Annuity

  2. Deferred annuity

  3. Contingent annuity

  4. Perpetual annuity
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

An annuity which begins payments only after a period is a deferred annuity
Annuity, where the payments start after specified no. of periods, is known as Deferred annuity.

Multiple choice business mathematics and statistics insurance and annuity amount of an annuity annuities financial mathematics

Which of the following is an example of annuity contingent ?

  1. Car Loan

  2. House Loan

  3. Daughter's Marriage

  4. All of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
$\Rightarrow$  $Daughter's\,\,Marriage$ is an example of annuity contingent. 
$\Rightarrow$  Annuity contingent is an annuity arrangement in which the beneficiary does not begin receiving payments until a specified event occurs.
 $\Rightarrow$  A contingent annuity may be set up to begin sending payments to a beneficiary upon the death of another individual who wishes to ensure financial stability for the beneficiary, or upon retirement or disablement of the beneficiary.
$\Rightarrow$  Car loan and House loan is not an example of annuity contingent, it's an example of annuity certain.
Multiple choice business mathematics and statistics insurance and annuity amount of an annuity annuities financial mathematics

What is true about Annuity Due ?

  1. It is an annuity in which payments are made at the end of each payment period.

  2. It is an annuity in which payments are made at the beginning of each payment period.

  3. It is an annuity in which payments are made in the middle of each payment period.

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

$\Rightarrow$   True statement about Annuity Due is,

$-It\,is\,an\,annuity\,in\,which\,payments\,are\,made\,at\,the\,beginning\,of\,each\,payment\,period.$
$\Rightarrow$  Annuity due is an annuity whose payment is to be made immediately at the beginning of each period. 
$\Rightarrow$  A common example of an annuity due payment is rent, as the payment is often required upon the start of a new month as opposed to being collected after the benefit of rent has been received for an entire month.
$\Rightarrow$  All payments are in the same amount.
$\Rightarrow$  All payments are made at the same intervals of time

Multiple choice business mathematics and statistics insurance and annuity amount of an annuity annuities financial mathematics

Which of the following is true about Annuity Contingent ?

  1. It is made till the happening of an event.

  2. It is made for fixed number of intervals of time.

  3. Loans for home comes under it

  4. All of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

$\Rightarrow$  True statement about Annuity contingent is $It\,is\,made\,till\,the\,happening\,of\,an\,event.$

$\Rightarrow$  An annuity arrangement in which the beneficiary does not begin receiving payments until a specified event occurs. 
$\Rightarrow$  A contingent annuity may be set up to begin sending payments to a beneficiary upon the death of another individual who wishes to ensure financial stability for the beneficiary, or upon retirement or disablement of the beneficiary.

Multiple choice business mathematics and statistics insurance and annuity amount of an annuity annuities financial mathematics

An annuity whose payments continue till the happening of an event, the date of which cannot be foretold is called.

  1. Contingent Annuity

  2. Deferred Annuity

  3. Perpetual Annuity

  4. Annuity certain
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

An annuity whose payments continue till the happening of an event, the date of which cannot be foretold is called contingent annuity.

Multiple choice business mathematics and statistics insurance and annuity amount of an annuity annuities financial mathematics

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 

  1. Perpetual annuity

  2. Contingent annuity

  3. Ordinary annuity

  4. Immediate annuity
Reveal answer Fill a bubble to check yourself
C,D Correct answer
Explanation

Answer is Ordinary or Immediate Annuity.

  1. An ordinary annuity or immediate annuity is 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. Examples are repayment of car loans, house mortgage etc.
  2. 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.
  3. 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.

Multiple choice business mathematics and statistics insurance and annuity amount of an annuity annuities financial mathematics

Process of loan repayment by installment payments is classified as

  1. appreciation of loan

  2. amortizing a loan

  3. depreciation a loan

  4. appreciation of investment
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

$\Rightarrow$   Process of loan repayment by installment payment is classified as $amortizing\,a\,loan.$

$\Rightarrow$   All repayments of interest-bearing debts by a series of payments, usually in size, made at equal intervals of time is called an amortization. Mortgages and many consumer loans are repaid by this method.
$\Rightarrow$  An amortized loan is a loan with scheduled periodic payments that consist of both principal and interest. An amortized loan payment pays the relevant interest expense for the period before any principal is paid and reduced. 
$\Rightarrow$   This is opposed to loans with interest-only payment features, balloon payment features and even negatively amortizing payment features.

Multiple choice business mathematics and statistics insurance and annuity amount of an annuity annuities financial mathematics

The dollar amount of mortgage loan multiplied monthly payment of mortgage loan per dollar is used to calculate

    1. semiannually mortgage payment

    2. daily mortgage payment

    3. monthly mortgage payment

    4. annually mortgage payment
    Reveal answer Fill a bubble to check yourself
    C Correct answer
    Explanation

    $\Rightarrow$  Dollar amount of mortgage loan multiplied monthly payment of mortgage loan per dollar is used to calculate $monthly\,mortgage\,payment.$

    $\Rightarrow$  The most common mortgage terms are 15 years and 30 years. Interest rate Annual fixed interest rate for this mortgage. Monthly payment (PI) Monthly principal and interest payment (PI). 
    $\Rightarrow$  Monthly payment (PITI) Monthly payment including principal, interest, homeowners insurance and property taxes.

    Multiple choice business mathematics and statistics insurance and annuity amount of an annuity annuities financial mathematics

    Which of the following is not an example of annuity certain ?

    1. Car Loan

    2. Daughter's Marriage

    3. House Loan

    4. All of above
    Reveal answer Fill a bubble to check yourself
    B Correct answer
    Explanation
    $\Rightarrow$  $Daughter's\,\,Marriage$ is not an example of annuity certain.
    $\Rightarrow$  Annuity certain is annuity that, as a minimum, guarantees a fixed number of payments. It continues over the life of the annuitant, even if he or she lives beyond the number of payments specified in the annuity contract. 
    $\Rightarrow$ In case the annuitant dies before exhausting the payments, a named beneficiary continues to receive the remaining number. Also called life annuity certain or life annuity certain and continuous.
    $\Rightarrow$  House loan and Car loan are examples of annuity certain.
    Multiple choice business mathematics and statistics insurance and annuity amount of an annuity annuities financial mathematics

    What is true about deferred annuity ?

    1. It is an annuity in which the first payment is postponed for period of times.

    2. It is annuity when payments are made at the end of each payment.

    3. It is annuity when payments are made at the beginning of each payment.

    4. None of the above
    Reveal answer Fill a bubble to check yourself
    A Correct answer
    Explanation

    Deferred payment annuities typically offer tax-deferred growth at a fixed or variable rate of return, just like regular annuities. Often deferred payment annuities are purchased for under-age children, with the benefit payments postponed until they reach a certain age. Deferred payment annuities can be helpful in retirement planning.
    Option (A) is correct