Question

Ali receives $2,400 from an investment at the beginning of every month for 1 years and 8 months at 5.78% compounded quarterly.

a. What type of annuity is this?

Ordinary simple annuity

Ordinary general annuity

Simple annuity due

General annuity due

b. How many payments are there in this annuity?

Answer 1

a). Ans- Option D. General Annuity Due

As the annuity are received at the beginning of every period which is Annuity due while Ordinary annuities are received at the end of every period. Since, Payments are received at the beginning of every month it is Annuity Due.

General Annuities are those annuities where Payment intervals are not same as Interest period while in Simple annuity Payment intervals are same as Interest period. Since, Payment is Received monthly while interest is Compounded Quarterly it is General Annuity.

Thus, it is General Annuity Due.

b). As payments are made every month for 1 year and 8 months, which means 20 months payments. Thus, there are 20 payments in this annuity.

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