Question

estion 9 Match each of the concepts with the way we can remember when to use it. We use .... when the situation involves .... yet vered ed out of compound interest Choose... annuity tion Choose... payout annuity Choose... tion 10 red out of In your own words, compare and contrast "annuities" and "payout annuities." Why do we need two different formulas? Your answer should use proper spelling, grammar, and punctuation, and should be around 3-5 sentences. Paragraph - BIEE 2 DE D Bathin 692

Answer 1

1. (a) We use compound interest when the situation states that the amount of interest is also to be added to the amount of principal. Compound interest is calculated at the total of interest and principal.

(b) We use annuity when the situation involves that the payment is to be made equally at the end of each particular period. It is usually required in the case of loans etc.

(c) We use annuity payout when the situation involves that the investor requires guaranteed return at the end of each specified period. One time single amount is paid by the investor and the return is guaranteed at the end of each period for the time of the annuity contract. This is usually calculated in the case of insurance business.

2. Annuity is a contract entered by a person with the insurance company to receive future payments at the end of each specified period. However, payout annuities is a type of the annuity contract which gives immediate and guaranteed payment to the investor.

Different formulas are required for the calculation of the annuity and payout annuity because annuity is calculated when the payment is to be made equally and payout annuity involves the guaranteed payments at the end of each period. Annuity can be either at the beginning or end of the period but payout annuity is required to be calculated at the beginning of each period