Question

What is true about Annuity Due?
A) It is an annuity in which payments are made at the end of each payment period.
B) It is an annuity in which payments are made at the beginning of each payment period.
C) It is an annuity in which payments are made in the middle of each payment period.
D) None of the above

Answer 1

Hint: Annuity is the fixed amount of money that is paid to someone each year. It is an investment or an insurance policy that pays a fixed amount of money each year. In this, the payment is to be made immediately at the beginning of each period. In this, all the payments are of the same amount, and the payments are done at the same intervals of time.

Complete step-by-step answer:
We need to find which is the correct statement regarding annuity due. Now let us check the given four options to us.
Option A, it is an annuity in which payments are made at the end of each payment period, false, payments are not made at the end, so this option is incorrect.
Option B, it is an annuity in which payments are made at the beginning of each payment period, true, payments are made at the beginning, so this option is correct.
Option C, it is an annuity in which payments are made in the middle of each payment period, false, payments are not made at the middle, so this option is incorrect.
Option D, none of the above, we already got our answer, so this option is incorrect.
Thus, option (B) It is an annuity in which payments are made at the beginning of each payment period, is correct.

So, the correct answer is “Option B”.

Note: The common example of an annuity due payment which we can see in our day to day life is rent. Rent is paid at the beginning of each month, the payment is done upon the start of a new month, and also the payment is done each month for the same amount.