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What is the present value of an annuity that pays Rs.2000 annually for 5 years with an interest rate of 8% compounded annually?
  • a)
    Rs.8000   
  • b)
    Rs.9000   
  • c)
    Rs.10000   
  • d)
    Rs.11000
Correct answer is option 'A'. Can you explain this answer?
Verified Answer
What is the present value of an annuity that pays Rs.2000 annually for...
Use the formula for the present value of an annuity: PV = PMT * ((1 - (1 + r)^-n)/r). PV = 2000 * ((1 - (1 + 0.08)^-5)/0.08) ≈ 8000.
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Most Upvoted Answer
What is the present value of an annuity that pays Rs.2000 annually for...
Present Value of Annuity Calculation:
The present value of an annuity can be calculated using the formula:
PV = Pmt * [(1 - (1 + r)^-n) / r]
Where:
PV = Present Value of the annuity
Pmt = Payment per period (Rs.2000 in this case)
r = Interest rate per period (8% or 0.08)
n = Number of periods (5 years in this case)

Calculation:
PV = 2000 * [(1 - (1 + 0.08)^-5) / 0.08]
PV = 2000 * [(1 - (1.08)^-5) / 0.08]
PV = 2000 * [(1 - 0.68058) / 0.08]
PV = 2000 * [0.31942 / 0.08]
PV = 2000 * 3.99275
PV = Rs. 7995.50
Therefore, the present value of the annuity that pays Rs.2000 annually for 5 years with an interest rate of 8% compounded annually is approximately Rs.7995.50, which is closest to option 'A' Rs.8000.
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