10. In which case is interest calculated on daily product/balance basis?
A. Fixed deposit with annual compounding only
B. Loan with monthly EMI only
C. Term deposit with quarterly interest
D. Savings account where interest accrues daily but paid quarterly
Savings account interest is usually calculated daily on the closing balance and credited quarterly.
11. Which product requires interest calculation on minimum balance maintained during the month?
A. Recurring deposit
B. Certain types of savings accounts
C. Fixed deposit
D. Loan against securities
Some savings accounts calculate interest based on the **minimum balance** maintained during the month rather than the average or daily balance.
12. Which of the following is the correct formula for calculating interest using daily product balance?
A. Interest = Σ(Daily Balance × Rate × 1/365)
B. Interest = Opening Balance × Annual Rate
C. Interest = Closing Balance × Monthly Rate
D. Interest = Principal × Number of Months × Rate
Daily product method sums up interest for each day: Interest = Σ(Daily Balance × Rate × 1/365).
13. What is an annuity?
A. A single lump sum payment made at the start of a period
B. Any loan given by a bank
C. A series of equal payments made at regular intervals
D. An account with variable interest
An annuity is a series of equal payments or receipts made at regular intervals over a specified period.
14. Which of the following formulas is used to calculate the future value (FV) of an ordinary annuity?
A. FV = P / (1 + R)^N
B. FV = PMT × ((1 + R)^N - 1) / R
C. FV = PMT × N
D. FV = P × (1 + R × N)
The future value of an ordinary annuity is calculated using: FV = PMT × ((1 + R)^N - 1) / R, where PMT is the periodic payment, R is the interest rate per period, and N is the number of periods.
15. If you receive ₹5,000 annually for 4 years at 6% interest, what is the future value of this ordinary annuity?
A. ₹20,000
B. ₹21,200
C. ₹20,600
D. ₹22,360
FV = 5,000 × ((1 + 0.06)^4 - 1) / 0.06 ≈ ₹22,360.
16. Present Value (PV) of an ordinary annuity is:
A. The total of all future payments
B. The current worth of future annuity payments discounted at a specific interest rate
C. The sum of interest only
D. The payment made at the end of the annuity period only
PV of an ordinary annuity discounts future payments to present value using a specific interest rate.
17. Which formula is used to calculate the present value (PV) of an ordinary annuity?
A. PV = FV / (1 + R)^N
B. PV = PMT × ((1 + R)^N - 1) / R
C. PV = PMT × (1 - (1 + R)^-N) / R
D. PV = PMT × N
PV of an ordinary annuity = PMT × (1 - (1 + R)^-N) / R, where PMT is periodic payment, R is rate per period, and N is number of periods.
18. A bank agrees to pay ₹10,000 annually for 5 years at 8% interest. The present value of this ordinary annuity is approximately:
19. Ordinary annuity differs from annuity due in that payments are made:
A. At the start of each period
B. At the end of each period
C. Only once at the end of tenure
D. Randomly during the tenure
Ordinary annuity payments are made at the end of each period, while annuity due payments occur at the start of each period.
20. Future value of an ordinary annuity increases if:
A. Payment amount decreases
B. Interest rate decreases
C. Number of periods decreases
D. Payment amount, interest rate, or number of periods increases
FV of an annuity rises when the periodic payment, interest rate, or number of periods increases, as more funds accumulate over time.
21. How does an annuity due differ from an ordinary annuity?
A. Payments are made at the beginning of each period
B. Payments are made at the end of each period
C. Payments vary each period
D. Interest is not considered
An annuity due requires payments at the beginning of each period, unlike ordinary annuity which pays at the end.
22. Which formula is used to calculate the future value (FV) of an annuity due?
A. FV = PMT × ((1 + R)^N - 1) / R
B. FV = PMT × (1 - (1 + R)^-N) / R
C. FV = PMT × ((1 + R)^N - 1) / R × (1 + R)
D. FV = PMT × N
FV of annuity due = FV of ordinary annuity × (1 + R), as each payment earns interest for one extra period.
23. Present value (PV) of an annuity due is calculated as:
A. PV = PMT × ((1 + R)^N - 1) / R
B. PV = PMT × (1 - (1 + R)^-N) / R × (1 + R)
C. PV = PMT × N
D. PV = PMT / (1 + R)^N
PV of annuity due = PV of ordinary annuity × (1 + R), since payments occur at the start of each period and are discounted for one less period.
24. A loan of ₹1,00,000 is to be repaid in 4 equal annual installments at 10% interest. The repayment method using equal payments is called:
A. Balloon payment
B. Simple interest method
C. Reducing balance method
D. Annuity method
The annuity method repays loans through equal periodic payments, combining principal and interest.
25. In the annuity method of repayment, the interest component of EMI:
A. Remains constant throughout the tenure
B. Decreases over time as principal reduces
C. Increases over time
D. Is ignored in calculation
In the annuity method, each EMI is constant but the interest portion decreases over time as the outstanding principal reduces.
26. Which of the following is correct for repayment of a debt using the annuity method?
A. Principal repaid first, then interest
B. Interest repaid first, principal later
C. Each installment includes both principal and interest
D. Entire principal repaid at end, interest paid periodically
In the annuity method, each installment (EMI) contains both principal and interest components.
27. If a loan of ₹50,000 is repaid in 3 equal annual installments at 8% interest using the annuity method, what will happen to the principal component over time?
A. Remains constant
B. Decreases gradually
C. Fluctuates randomly
D. Increases with each installment
In the annuity method, the principal component increases with each installment as the interest portion decreases.
28. Which of the following best describes EMI in the context of annuity repayments?
A. Equal periodic payment including both interest and principal
B. Interest-only payment
C. Principal-only payment
D. Balloon payment at the end of tenure
EMI (Equated Monthly Installment) is a fixed payment that includes both principal and interest components in the annuity method.
