Which of the following statements are correct?
(A) A fund which is created to accumulate money over the years to discharge a future obligation is called a sinking fund.
(B) The amount or future value of perpetuity is well-defined.
(C) The sinking fund be used in any emergency.
(D) An equated monthly installment is a fixed payment made by a borrower to a lender at a specific date every month to clear off the loan.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A) and (D) only
Analysis of statements:
(A) ✔ Correct. A sinking fund is created to accumulate money over time to meet a future liability.
(B) ✖ Incorrect. The future value of a perpetuity is not finite unless discounted at a positive rate; its present value is finite.
(C) ✖ Incorrect. A sinking fund is meant for a specific obligation and generally cannot be used for emergencies.
(D) ✔ Correct. An equated monthly installment (EMI) is a fixed monthly payment to clear a loan.