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Question
In an ordinary annuity, payments or receipts occur at ______.
Options
Beginning of each period
End of each period
Mid of each period
Quarterly basis
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Solution
In an ordinary annuity, payments or receipts occur at end of each period.
Explanation:
Payments are made at the conclusion of each period (such as a month, quarter, or year) in an ordinary annuity. Bond interest payments, mortgage payments, and loan payments are typical instances. As a result, payments for an annuity due are made at the start of each period.
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The future amount, A = ₹ 10,00,000
Period, n = 20, r = 5%, (1.025)20 = 1.675
A = `"C"/"I" [(1 + "i")^"n" - 1]`
I = `5/200` = `square` as interest is calculated semi-annually
A = 10,00,000 = `"C"/"I" [(1 + "i")^"n" - 1]`
10,00,000 = `"C"/0.025 [(1 + 0.025)^square - 1]`
= `"C"/0.025 [1.675 - 1]`
10,00,000 = `("C" xx 0.675)/0.025`
C = ₹ `square`
