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Suppose your mom decides to gift you rs 10000 every year starting from today for the next sixteen years. You deposit this amount in a bank as and when you recieve and get 8.5% per annum interest rate compounded annually. What is the present value of this money?
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Suppose your mom decides to gift you rs 10000 every year starting from...
Calculation of Present Value of Money
Given Information:
- Amount received every year = Rs. 10,000
- Number of years = 16 years
- Interest rate = 8.5% per annum
- Compounded annually
Formula for Present Value of Annuity:
PV = (A * ((1 - (1 + r)^-n) / r)) * (1 + r)^-n
- PV = Present Value
- A = Annuity
- r = Rate of Interest
- n = Number of Years
Calculation:
Here, A = Rs. 10,000, r = 8.5% and n = 16 years
Using the formula, we get:
PV = (10,000 * ((1 - (1 + 0.085)^-16) / 0.085)) * (1 + 0.085)^-16
PV = Rs. 1,10,680.66
Explanation:
The present value (PV) of an annuity is the value of a stream of payments, discounted by the rate of interest to reflect the time value of money. In this case, the stream of payments is Rs. 10,000 received every year for 16 years. We need to calculate the present value of all these payments received over the 16-year period.
We use the formula for present value of annuity to calculate the present value of the stream of payments. The formula uses the rate of interest, number of years, and the annuity amount to calculate the present value of the annuity.
After calculating the present value of the annuity, we get the present value of all the payments received over the 16-year period as Rs. 1,10,680.66.
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Suppose your mom decides to gift you rs 10000 every year starting from today for the next sixteen years. You deposit this amount in a bank as and when you recieve and get 8.5% per annum interest rate compounded annually. What is the present value of this money?
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Suppose your mom decides to gift you rs 10000 every year starting from today for the next sixteen years. You deposit this amount in a bank as and when you recieve and get 8.5% per annum interest rate compounded annually. What is the present value of this money? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Suppose your mom decides to gift you rs 10000 every year starting from today for the next sixteen years. You deposit this amount in a bank as and when you recieve and get 8.5% per annum interest rate compounded annually. What is the present value of this money? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Suppose your mom decides to gift you rs 10000 every year starting from today for the next sixteen years. You deposit this amount in a bank as and when you recieve and get 8.5% per annum interest rate compounded annually. What is the present value of this money?.
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