Mathematics of FinanceMCQMTP June 24 Series IQuestion 1531 of 512
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Find the present value of an annuity of 1,000\displaystyle 1,000 payable at the end of each year for 10\displaystyle 10 years. If rate of interest is 6%\displaystyle 6\% compounding per annum.

Options

A7,360\displaystyle 7,360
B8,360\displaystyle 8,360
C12,000\displaystyle 12,000
DNone of these
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Correct Answer

Option a7,360\displaystyle 7,360

All Options:

  • A7,360\displaystyle 7,360
  • B8,360\displaystyle 8,360
  • C12,000\displaystyle 12,000
  • DNone of these

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Detailed Solution & Explanation

The present value (PV\displaystyle PV) of the annuity is: PV=A×[1(1+i)ni]PV = A \times \left[ \frac{1 - (1+i)^{-n}}{i} \right] Given: * Annual payment (A\displaystyle A) = 1,000\displaystyle 1,000 * Time (n\displaystyle n) = 10\displaystyle 10 years * Interest rate (i\displaystyle i) = 6%\displaystyle 6\% p.a. = 0.06\displaystyle 0.06 Substituting the values: PV=1,000×[1(1.06)100.06]PV = 1,000 \times \left[ \frac{1 - (1.06)^{-10}}{0.06} \right] Using (1.06)100.55839\displaystyle (1.06)^{-10} \approx 0.55839: PV=1,000×7.360097,360.09PV = 1,000 \times 7.36009 \approx 7,360.09 This matches Option A (7,360\displaystyle 7,360). Hence, **Option A** is the correct answer.

About This Chapter: Mathematics of Finance

Paper

Paper 3: Quantitative Aptitude

Weightage

12-16 Marks

Key Topics

Simple & Compound Interest, Annuity, Perpetuity

The most important mathematical chapter in the entire syllabus. It covers Simple Interest (SI), Compound Interest (CI), Nominal vs Effective rates, Present and Future Value, Annuities (Ordinary and Due), Sinking Funds, and Perpetuities. The concepts learned here are applied heavily in CA Intermediate and Final.

View Official ICAI Syllabus

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Guaranteed 12-16 marks. Master your calculator! Learn the 'GT' and compound interest M+/M- tricks to solve annuity questions in 10 seconds without writing long formulas.

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