Question

Suppose you put some money in a bank and you withdraw a fixed amount periodically until your deposit is run down to zero. at this point, you stop. what have you replicated with this?

a) An annuity
b) Compound interest
c) Amortization
d) Simple interest

Answer 1

The action described in the question is an example of amortization.

Step-by-step explanation:

The action described in the question is an example of c) Amortization.

Amortization is the process of paying off a loan or debt in regular installments over a period of time. In this case, the fixed amount being withdrawn periodically from the bank account represents the loan repayment or debt reduction. When the deposit is run down to zero, it indicates that the loan or debt has been fully paid off.

For example, if you borrow $10,000 and repay it in monthly installments of $500, once the balance reaches zero, you have completed the amortization process.