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Mrs. X invests in an annuity immediately that promises annual payment of ₹ 50,000 for the next 16 years. If the interest rate is 6% compounded annually then the approximate present value of this annuity is , where(1.06)15 = 2.3965.?
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Mrs. X invests in an annuity immediately that promises annual payment ...
Calculating the Present Value of an Annuity:
An annuity is a series of equal payments made at regular intervals. To calculate the present value of an annuity, we need to discount each payment back to its present value using the given interest rate.

Formula for Present Value of Annuity:
The formula to calculate the present value of an annuity is:
PV = PMT * [(1 - (1 + r)^-n) / r]
Where:
PV = Present Value
PMT = Payment per period
r = Interest rate per period
n = Number of periods

Given Data:
PMT = ₹ 50,000
r = 6% = 0.06
n = 16 years

Calculating Present Value:
Using the given formula:
PV = ₹ 50,000 * [(1 - (1 + 0.06)^-16) / 0.06]
PV = ₹ 50,000 * [(1 - 1/2.3965) / 0.06]
PV = ₹ 50,000 * (1 - 0.417) / 0.06
PV = ₹ 50,000 * 0.583 / 0.06
PV = ₹ 50,000 * 9.72
PV = ₹ 48,600
Therefore, the approximate present value of the annuity is ₹ 48,600. This means that Mrs. X should invest ₹ 48,600 today to receive annual payments of ₹ 50,000 for the next 16 years at an interest rate of 6% compounded annually.
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Mrs. X invests in an annuity immediately that promises annual payment of ₹ 50,000 for the next 16 years. If the interest rate is 6% compounded annually then the approximate present value of this annuity is , where(1.06)15 = 2.3965.?
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