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Question
State whether the following is True or False:
Annuity certain begins on a fixed date and ends when an event happens.
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Solution
This statement is false.
Explanation:
An annuity certain starts on a fixed date and ends on a fixed date, because it is payable for a predetermined period of time. It does not depend on any uncertain event (like death); such dependence is a feature of a contingent annuity.
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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`
