Mr x has to receive rs 2000 per year for 5 years.calculate the pv of the annuity assuming that he can earn interest on his investment at 10% per annum.
Answers
Step-by-step explanation:
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Concept
Present value (PV) is the current value of a future financial asset or stream of cash flows, given a specific rate of return. Future cash flows are discounted to some extent depending on the discount rate, and the higher the rate, the lower the present value of those future cash flows will be. Choosing the appropriate discount rate is crucial for accurately valuing future cash flows, whether they pertain to earnings or debt obligations. The equation for calculating present value is PV = F/(1 + i)ⁿ, where PV is present value, F is future value, I is interest rate, and n is the number of periods.
Given
Future value = 2000
Number of periods = 5
Interest rate = 10%
Find
We have to find the value of the present value(PV).
Solution
Present Value = PV = 2000/(1 + 10/100)⁵ = 2000/1.1⁵ = 1241.84
Therefore, the value of the present value(PV) is Rs. 1241.84
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