Tag: financial mathematics

Questions Related to financial mathematics

Amount of money today which is equal to series of payments in future

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

    1. nominal value of annuity

    2. sinking value of annuity

    3. present value of annuity

    4. future value of annuity

    Show answer
    Correct Option: A
    Explanation:

    By definition,

    Nominal value of annuity is the amount of money today which is equal to series of payments in future.

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

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

    1. Immediate Annuity

    2. Deferred annuity

    3. Contingent annuity

    4. Perpetual annuity

    Show answer
    Correct Option: B
    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.

    Which of the following is an example of annuity contingent ?

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

    1. Car Loan

    2. House Loan

    3. Daughter's Marriage

    4. All of the above

    Show answer
    Correct Option: C
    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.

    Security payment type in which payments are made at equal intervals of time and every payment amount is same is classified as _______________.

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

    1. fixed interval investment

    2. fixed payment investment

    3. annuity

    4. lump sum amount

    Show answer
    Correct Option: C
    Explanation:

    An annuity is a series of equal payments in equal time periods. Usually, the time period is $1$ year, which is why it is called an annuity, but the time period can be shorter, or even longer. These equal payments are called the periodic rent. The amount of the annuity is the sum of all payments.
    such security payment type in which payments are made at equal intervals of time and every payment amount is same is classified as annuity.

    If payment of security is paid as $ $100$ at end of year for three years, it is an example of

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

    1. fixed payment investment

    2. lump sum amount

    3. fixed interval investment

    4. annuity

    Show answer
    Correct Option: D
    Explanation:

    The amount of the annuity is the sum of all payments.
    such security payment type in which payments are made at equal intervals of time and every payment amount is same is classified as annuity.
    If payment of security is paid as $100 at end of year for three years, it is an example of annuity.

    What is true about Annuity Due ?

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

    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

    Show answer
    Correct Option: B
    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

    Which of the following is true about Annuity Contingent ?

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

    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

    Show answer
    Correct Option: A
    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.

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

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

    1. Daughter's Marriage Loan

    2. Life Insurance Plans

    3. Mortgage

    4. All of the above

    Show answer
    Correct Option: C
    Explanation:
    $\Rightarrow$  $Mortgage$ is not 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.
    $\Rightarrow$  Daughter's Marriage loan and Life insurance plans are examples of annuity contingent.

    The Future amount of annuity, $(M)$, can be found by

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

    1. $ M=\dfrac{A}{r} \times \left[(1+r)^{n}+1\right] $

    2. $ M=\dfrac{r}{A} \times \left[(1+r)^{n}-1\right] $

    3. $ M=\dfrac{A}{r} \times \left[(1+r)^{n}-1\right] $

    4. $ M=\dfrac{r}{A} \times \left[(1+r)^{n}+1\right] $

    Show answer
    Correct Option: C
    Explanation:

    The future amount of annuity (M) can be founded by the formula

    $M=\dfrac { A }{ r } \times \left[ { \left( 1+r \right)  }^{ n }-1 \right] $
    Where $A$ is amount and $r$ is rate and $n$ is duration

    An annuity left unpaid for a certain number of years is called ________ for that number of years.

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

    1. Deferred Annuity

    2. Uniform Annuity

    3. Forborne Annuity

    4. Immediate Annuity

    Show answer
    Correct Option: C
    Explanation:

    An annuity left unpaid for a certain number of years is called forborne annuity for that number of years.