B invests an amount of 500000 and receives an annuity of 50000 for 4 years at 10% rate. Compute the present value of annuity of 50000
To calculate the present value of an annuity, we can use the formula:
PV = A * (1 - (1 + r)^(-n)) / r
Where:
PV = Present Value
A = Annuity payment per period (50000)
r = Interest rate per period (10% or 0.10)
n = Number of periods (4 years)
Plugging in the values:
PV = 50000 * (1 - (1 + 0.10)^(-4)) / 0.10
PV = 50000 * (1 - (1.4641)^(-4)) / 0.10
PV = 50000 * (1 - 0.6830) / 0.10
PV = 50000 * (0.3170) / 0.10
PV = 15850
Therefore, the present value of an annuity of 50000 for 4 years at a 10% rate is 15850.