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
Dealing with changes in the trust Profits or losses on disposal of investments should be treated as belonging to that part of the fund out of which they accrued. If not app

A of surat consigns goods to B of jaipur to be sold at or above price .Be is entitles to get a ommission of 8% on sales at invoice price plus 25% of any surplus price realized. B

In assessing project risk it is significant to be clear about the meaning of risk. From an academic perspective risk demotes to a set of circumstances regarding a given decision wh

GROUP STRUCTURES A group structure is the relationship between the holding company and its subsidiaries.  There are normally four main types of group structures (apart from the

Middlehurst House is a daycare center/preschool which operates as a partnership of George Friedman and Bill Compton. The center is in a city that has a large base of twoincome fami

The following items are found in the trial balance of M/s Sharada Enterprise on 31st December, 2000. 10 marks Summer 2013 Sundry Debtors Rs.160000 Bad Debts written off Rs 9000 Dis

Important points for holding company with subsidiary The following points are important: 1) The first approach is to determine the effective shareholding by the holding compan

We consider two identical firms that produce the same good. The demand for that good is the function D(p) = 1 - p where p is the unit price. Firms incur no cost. The competition


In its first month in business, Jones, Inc. sold merchandise to customers on account for $119,800. It collected $72,000 on those sales during the first month and recorded Revenue f