Present value of an annuity, Financial Accounting

Assignment Help:

Let us assume you expect to obtain Rs.2000 yearly for the next three years. The receipt of Rs.2000 is evenly divided. One part that is: Rs.1000 is obtained at the beginning of the year and the remaining Rs.1000 is received on the end of the year. We are interested in understanding the present value while the discount rate is 10%. The cash flows declared above are of two types that are similar to annuity due and regular annuity. The present value of such cash flow is determined as follows:

a) Present value of Rs.1000 obtained at the end of each year for three years as Regular annuity.

Rs. 1000 (1/ 1.10) + Rs.1000 (1/ 1.10)2 + Rs.1000 (1/ 1.10)3

= (1000 * 09091) + (1000 * 08264) + (1000 + 0.7513)

= Rs.2479.

b) Present value of Rs.1000 obtained at the starting of each year for three yearas annuity due

= Rs. 1000 + Rs. 1000 (1/ 1.10) + Rs.1000 (1/ 1.10)2

= 1000 + (1000 * 09091) + (1000 + 08264)

= Rs.2735

The present value of such annuity = Rs. 2479+Rs.2735 = Rs. 5214.


Related Discussions:- Present value of an annuity

A prior period adjustment, Q. A prior period adjustment that corrects incom...

Q. A prior period adjustment that corrects income of a prior period requires that an entry be made to a. an income statement account. b. a current year revenue or expense account.

Depreciation, what are methods of calculating depreciation?

what are methods of calculating depreciation?

Calculate the new interest rate and excel function pv, Continuing growth of...

Continuing growth of the company has required that we issue the company's corporate debt soon. As you know, in 6 months we plan to issue $10 million worth of 20-year corporate bond

Executive, Ask question #EM201683STE718FACMinimum 100 words accepted#

Ask question #EM201683STE718FACMinimum 100 words accepted#

Items reducing the deficit-liquidation of companies, Items reducing the def...

Items reducing the deficit: Items reducing the deficit would include: (a)    Profits from trading; (b)    Estimated profit on the realisation of assets. Notes: (a) Whe

Determine the actual sales, CarloffCremes (CC) planned to sell 40,000 Queen...

CarloffCremes (CC) planned to sell 40,000 Queen size at $20 each and 20,000 King size at $15 each. Actual sales of the former were 45,000 and 25,000 of the latter, at $19 and $16 r

To observe terms of trust-trusts laws and accounts, To observe terms of tru...

To observe terms of trust   Trustees must comply with the trust instrument and the rules of equity; they need not consult the beneficiaries or take instructions from them; but the

What is accounting and book keeping, Question 1 What is accounting and boo...

Question 1 What is accounting and book keeping? Explain the objectives of accounting? Question 2 Explain GAAP and write down the relationship between accounting principles, a

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd