Question

In which of the following frequency of compounding present value of annuity will be lowest ?
daily
quaterly
monthly
annual

Answer 1

Answer:

The answer to the question is daily.

Answer 2

Explanation:

annual. The formula of annuity for present value is C X {{1- [1 / (1 + r) t ]} / r }, where C is the capital, 'r' is the rate of interest and 't' is the time period for calculation. From the formula itself, one can be able to see that as the time period increases, the present value of annuity will get lower. Hence, for an annual annuity that comprises of 12 months, it will be the lowest.