Appu retires at 60 years receiving a pension of 14400, a year paid in half yearly installments for rest of his life after recknowing his life expectations to be 13 years and that interest at 4%p.a. is payable half yearly. (A) 1,45,000 (B) 1,44,900 (C) 1,44,800 (D) 1,44,700 Answer is (B) , but please explain the answer?

Question

Answer

Calculation of the present value of the pension:
To calculate the present value of the pension, we need to determine the amount that Appu would receive every six months for the next 13 years. The interest is payable semi-annually at a rate of 4% per annum.

Step 1: Determine the half-yearly pension amount:
The annual pension amount is given as 14,400. To find the half-yearly amount, we divide it by 2:
Half-yearly pension = 14,400 / 2 = 7,200

Step 2: Determine the number of periods:
The pension is paid for the next 13 years. Since interest is payable semi-annually, the number of periods would be 13 * 2 = 26.

Step 3: Determine the discount rate:
The interest rate is given as 4% per annum, payable semi-annually. To find the discount rate for each period, we divide the annual interest rate by the number of periods in a year:
Discount rate per period = 4% / 2 = 2%

Step 4: Calculate the present value:
Using the formula for the present value of an annuity, we can calculate the present value of the pension:
Present value = (Half-yearly pension * (1 - (1 + discount rate)^-number of periods)) / discount rate

Substituting the values:
Present value = (7,200 * (1 - (1 + 0.02)^-26)) / 0.02
Present value ≈ 144,900

Therefore, the present value of the pension is approximately 144,900.

Conclusion:
The present value of the pension is calculated to be approximately 144,900. Therefore, the correct answer is (B) 1,44,900.

Similar CA Foundation Doubts

Appu retires at 60 years receiving a pension of 14,400 a year paid in half-yearly installmentsfor rest of his life after reckoning his life expectation to be 13 years and that interest at 4%p.a. is payable half-yearly. What single sum is equivalent to his pension?(

Appu retires at 60 years receiving a pension of 14400 a year paid in half-yearly installments for rest of his life after reckoning his life expectation to be 13 years and that interest at 4% p.a. is payable half-yearly. What single sum is equivalent to his pension?

Appu retires at 60 years receiving a pension of 14,400 a year paid in half-yearly installments for rest of his life after reckoning his life expectation to be 13 years and that interest at 4% pa is payable half-yearly. What single sum is equivalent to his pension?

Appu retires at 60 years receiving a pension of 14,400 a year paid in half-yearly installments for rest of his life after reckoning his life expectation to be 13 years and that interest at 4% nà is payable half-yearly. What single sum is equivalent to his pension?

Appu retires at 60 years receiving a pension of 14,400 a year paid in half-yearly installments for rest of his life after reckoning his life expectation to be 13 years and that interest at 4% pa is payable half-yearly?

Top Courses for CA FoundationView all

Quantitative Aptitude for CA Foundation

Principles and Practice of Accounting

Business Laws for CA Foundation

Business Economics for CA Foundation

Mock Tests & Past Year Papers for CA Foundation

Top Courses for CA Foundation

Top Courses for CA Foundation

Suggested Free Tests

Related Content

CA Foundation Courses

Other Courses

How To Prepare?

Other Exams

Company