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Question
What is the present value of an annuity due of ₹ 1,500 for 16 years at 8% per annum? What is the present value of an annuity due of ₹ 1,500 for 16 years at 8% per annum? [(1.08)16 = 3.172]
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Solution
Present value of annuity due, P = `(a (1 + i))/i [1 - 1/(1 + i)^n]`
Here a = 1500, n = 16, i = `8/100` = 0.08
P = `(1500 (1 + 0.08))/(8/100) [1 - 1/(1.08)^16]`
= `(1500 xx 100 xx (1.08))/8 [1 - 1/3.172]` ...[∵ (1.08)16 = 3.172]
= `162000/8 [1 - 1/3.172]`
= `20250 [1 - 0.31524]`
= 20250 [0.68476]
= 13866.39
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