Question

What is the present value of an annuity of Rs 300 per annum for 5 years at 4% ?

Answer 1

present value of annuity is 1335.6 Rs.

annuity is the financial term. which is found by using formula,

annuity = rPVA_(ordinary)/[1 - (1 + r)^-n ]

here, PVA_(ordinary) is present value of an ordinary annuity, r is effective rate of interest and n is number of periods.

annuity = 300 Rs.

r = 4% = 4/100 = 0.04

and n = 5

300 = 0.04× PVA_(ordinary)/[1 - (1.04)^-5]

⇒300 × [1 - (1.04)^-5 ] = 0.04 PVA_(ordinary)

⇒PVA_(ordinary) = 300 × [1 - 1/(1.04)^5]/0.04

= 300 × [1 - 1/1.21665 ]/0.04

= 300 × [1 - 0.82192 ]/0.04

= 300 × 0.17808/0.04

= 1335.6 Rs.

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Answer 2

Step-by-step explanation:

What is the present value of an annuity of Rs 300 per annum for 5 years at 4% ?