Correct Answer - Option 2 : Annuity certain
Explanation:
An annuity plan is one that provides you periodic payments for a term that you have chosen, for the amount that you pay as premiums. Your payment can be paid as a lump sum or over at a specified frequency
Types of annuity are as follows:
1) Annual annuity/due:
- The amount paid at the beginning of each period or year for a defined number of intervals is called an annual annuity.
- Examples of annuities are regular deposits to a savings account, monthly home mortgage payments, monthly insurance payments, and pension payments.
2) Perpetual annuity:
- The payments of the annuity that continues for an indefinite period of time or we can say has no end is called a perpetual annuity.
- for example pension, royalty.
3) Deferred annuity:
- The payments of the annuity began after some years.
- for example return from an insurance policy.
Capitalized cost:
- It is the amount whose annual interest will be equal to the net income from the property
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capitalized value = Net annual income × Year's purchase.
Year's purchase:
- The capital sum required to be invested in order to receive an annuity of Rs 1 at some rate of interest is called a year's purchase.
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Year's purchase = 100/rate of interest
