Which of the following statements about annuities are true? Check all that apply

Question

Which of the following statements about annuities are true? Check all that apply. An annuity due earns more interest than an ordinary annuity of equal time. An annuity due is an annuity that makes a payment at the beginning of each period for a certain time period. An annuity is a series of equal payments made at fixed intervals for a specified number of periods. Ordinary annuities make fixed payments at the beginning of each period for a certain time period. Which of the following is an example of an annuity? A fund that invests in technology companies and distributes dividends every quarter A retirement fund set up to pay a series of regular payments Katie had a high monthly food bill before she decided to cook at home every day in order to reduce her expenses. She starts to save $1,620 every year and plans to renovate her kitchen. She deposits the money in her savings account at the end of each year and earns 12% annual interest. Katie's savings are an example of an annuity. If Katie decides to renovate her kitchen, how much would she have in her savings account at the end of two years? $2,919.24 $3,846.53 $3,434.40 $2,737.88 If Katie deposits the money at the beginning of every year and everything else remains the same, how much will she save by the end of two years?

Explanation / Answer

Question 1:

Options 1,2 and 3 are correct

Question 2

A retirement fund set up tp pay a series of regular intervals is an example of an annuity

Question 3: The future value of this ordinary annuity is given by = FV(rate,nper,pmt,pv,type) where rate = 0.12, nper = 2, pmt =1620, pv = 0 and type = 0 (since its an ordinary annuity)

Future Value = fv(0.12,2,1620,0,0)= 3,434.40 (Option C)

Question 4: Now if this is an annuity due, we will have the formula as = FV(rate,nper,pmt,pv,type) where rate = 0.12, nper = 2, pmt =1620, pv = 0 and type = 1 (since its an annuity due)

Future value =fv(0.12,2,1620,0,1) = 3,846.53 (Option B)

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