Mathematics for FinanceMTP 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 a — 7,360\displaystyle 7,360

All Options:

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

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)−10≈0.55839\displaystyle (1.06)^{-10} \approx 0.55839: PV=1,000×7.36009≈7,360.09PV = 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.

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