Calculation of Present Value of Annuity

To calculate the present value of an annuity, we need to follow the below steps:

1. Find out the annual payment amount - In this case, it is 5000 per annum.

2. Determine the interest rate - In this case, the interest rate is 4% per annum.

3. Calculate the present value factor - The present value factor is calculated based on the interest rate and the number of periods. In this case, the number of periods is 12 years, and the interest is compounded annually.

4. Apply the formula - The formula to calculate the present value of an annuity is:

Present value = Annual payment x Present value factor

Calculation of Present Value Factor

The present value factor can be calculated using the below formula:

Present value factor = 1 / (1 + i)n

Where i is the interest rate, and n is the number of periods.

In this case, i = 4% and n = 12.

So, the present value factor = 1 / (1 + 0.04)12

Present value factor = 0.6575

Calculation of Present Value

Now, we can calculate the present value of the annuity using the formula mentioned earlier.

Present value = 5000 x 0.6575

Present value = 3287.50

Therefore, the present value of the annuity of 5000 per annum for 12 years at 4% p.a. CI annually is 3287.50.

3122.98