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The present value of an annuity of Rs. 80 a years for 20 years at 5% p.a. is
- a)Rs. 997 (appx.)
- b)Rs. 900
- c)Rs. 1000
- d)None of thes
Correct answer is option 'A'. Can you explain this answer?
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The present value of an annuity of Rs. 80 a years for 20 years at 5% p...
Calculation of Present Value of Annuity:
Step 1: Determine the amount of annuity i.e. Rs. 80
Step 2: Determine the number of years i.e. 20
Step 3: Determine the rate of interest i.e. 5%
Step 4: Determine the Present Value of Annuity using the following formula:
PV = A * [(1 - (1 + r)^-n) / r]
Where,
PV = Present Value of Annuity
A = Amount of Annuity
r = Rate of Interest
n = Number of Years
Putting the given values in the formula, we get:
PV = 80 * [(1 - (1 + 0.05)^-20) / 0.05]
PV = 80 * [(1 - 0.37689) / 0.05]
PV = 80 * (0.62311 / 0.05)
PV = 80 * 12.4622
PV = Rs. 996.976 (approx.)
Hence, the present value of an annuity of Rs. 80 a year for 20 years at 5% p.a. is approximately Rs. 997. Therefore, option A is the correct answer.
Step 1: Determine the amount of annuity i.e. Rs. 80
Step 2: Determine the number of years i.e. 20
Step 3: Determine the rate of interest i.e. 5%
Step 4: Determine the Present Value of Annuity using the following formula:
PV = A * [(1 - (1 + r)^-n) / r]
Where,
PV = Present Value of Annuity
A = Amount of Annuity
r = Rate of Interest
n = Number of Years
Putting the given values in the formula, we get:
PV = 80 * [(1 - (1 + 0.05)^-20) / 0.05]
PV = 80 * [(1 - 0.37689) / 0.05]
PV = 80 * (0.62311 / 0.05)
PV = 80 * 12.4622
PV = Rs. 996.976 (approx.)
Hence, the present value of an annuity of Rs. 80 a year for 20 years at 5% p.a. is approximately Rs. 997. Therefore, option A is the correct answer.
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