Find the present value of an immediate annuity of Rs 250 per year for 20ears 4%p.a.?

Question

Answer

Calculating the Present Value of an Immediate Annuity

Given Information:

Annuity payment: Rs 250 per year

Time period: 20 years

Discount rate: 4% p.a.

Formula:

The present value of an immediate annuity can be calculated using the formula:

Present value = Annuity payment x (1 - (1+r)^-n) / r

Where,

r = Discount rate

n = Number of years

Calculation:

Using the formula, we can calculate the present value of the immediate annuity as:

Present value = 250 x (1 - (1+0.04)^-20) / 0.04

Present value = 250 x (1 - 0.4564) / 0.04

Present value = 250 x 9.0889

Present value = Rs 2,272.22

Interpretation:

The present value of the immediate annuity of Rs 250 per year for 20 years at a discount rate of 4% p.a. is Rs 2,272.22. This means that if the annuity payments were to be made immediately, and the investor had the option to receive the entire amount upfront, then the investor would need to receive Rs 2,272.22 to be indifferent between receiving the annuity payments and receiving the lump sum amount.

Answer

5200

Answer

200

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