Question

FIN220 Question 7. What is an annuity? Give some examples of annuities. And what is an annuity due? How does this differ from an ordinary annuity? Question 8. Suppose you are considering taking consumer loan from bank for one year. Usually, for short- term loans, the bank offers 12 percent interest that compounds annually. Your credit application has been viewed by a few banks and two of them replied; Bank ALFA offers you a loan at 12 percent annual rate interest payment by the end of year, and Bank BETA offers a loan with the same annual interest rate, but interest payment is 3 percent by the end of each quarter. Which loan do you prefer? Why? Question 9. Nikora Ltd., based in Georgia, produces meat and milk products. The company sold old machinery for 100,000 Georgian Lari (GEL) and decided to put this amount in a term deposit, which usually pays 10 percent annually. a. Calculate the amount of money that Nikora will receive after 2, 4, and 7 years of deposit b. Re-calculate results from part (a) if bank offers 10 percent annual compound interest on semi-annual basis. c. Re-calculate results from part (a) if bank offers 10 percent annual simple interest rate basis

Answer 1

Question 7

Annuity

Annuity is an agreement or contract between one person and any financial companies or insurance companies, in which that person make payments in a series or lump sum payments.For the money paid, the person will get return in regular intervals starting with a future period or after the retirement.Annuities can be considered as retirement plans.The who made the series of payment will get regular distribution of that payment along with interest.

example: monthly insurance payments , pension payments.

Annuity Due

Annuity due is the series of payments made at the beginning of each period in the same intervals. Apart from, annuity paying at the end, annuity due is paid at the beginning of each period as same amounts.

example. rent for the house is paid at the beginning of each month.

-Annuity due is payments of same amount in same intervals at the beginning of each period and Annuity is paid at the end of the period and the amount can also be deffer.

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