Example of annuity, Financial Accounting

Assume Mr. Ram deposits Rs. 10,000 annually in a bank for 5 years, at 10 percent compound interest rate. Compute the value of this series of deposits on the end of five years by assuming that (i) all deposit occurs on the end of the year (ii) all deposit occurs at the starting of the year.

Solution:

The future value of regular annuity will be as:

Rs. 1000 (1.10)4 + 1000 (1.10)3 +1000 (1.10)2+1000 (1.10) +1000

= 6105.

The future value of an annuity due will be as:

Rs. 1000 (1.10)5 + 1000 (1.10)4 +1000 (1.10)3+1000 (1.10)2 +1000 (1.10)

= Rs 1000 (1.611) + 1000 (1.4641) + 1000 (1.331) + 1000 (1.21)+1000 (1.10)

= Rs. 6716.

In the above illustration you have seen the dissimilarity in future value of a regular annuity and annuity due. This diversity in value is because of the timing of cash flow. Within the case of regular annuity, the last cash flow doesn't earn any interest, for individual period the cash flows earns an interest and in case when annuity due.

Posted Date: 4/9/2013 2:32:58 AM | Location : United States







Related Discussions:- Example of annuity, Assignment Help, Ask Question on Example of annuity, Get Answer, Expert's Help, Example of annuity Discussions

Write discussion on Example of annuity
Your posts are moderated
Related Questions
unit selling price of products= $40 unit variable expense of product= $24 Total fixed expenses= 560,000 avg op assets= 3,000,000 1)how many units must the division sell each yea

Calculate the market value of Renowned Cola''s debt at year-end 2005. What is the book value of debt? Why do usually use market or book values for debt? Explain.

Change in profit sharing ratio When there is a change in profit sharing ratio, it means that some of the partners will get higher profits based on the new ratios in the future wh

Trustees remuneration A trustee may not receive remuneration except: 1. By order of the court, if the trust is very onerous or the services of the trustee very valuable;

ASSOCIATE COMPANIES (IAS 28) An associate company is a company in which the investing company owns more than 20% but less than 50% of the voting rights.  This means that the inve

Determine the LIFO cost Toys "R" Us purchases inventory in crates of merchandise; each unit of inventory is a crate of toys. The fiscal year of Toys "R" Us ends each January 31

Q. What do you eman by Lease? Lease - Conveyance of buildings orland, equipment or other ASSETS from one person (LESSOR) to another (LESSEE) for a specific period of time for m

Q. Define Constant working capital? The supposition of constant working capital should be investigated. Net working capital is probable to increase in line with sales and so ad

I have tried to answer this assignment with no luck. Balance brought forward : Cash in Hand : $5000 Cash at Bank : $ 90,000 March 2 Received Cash loan of $25 ,0

Corporation Tax This is the tax payable by companies on their trading activities of a given financial period. The standard doesn’t give the guidelines on how this tax should be