Concept:Present value of an annuity due (payment at start of each period) is calculated as immediate payment plus present value of the remaining ordinary annuity.
Explanation:• The annuity gives Rs. 5,000 at the beginning of each year for 4 years.
• The first payment of Rs. 5,000 is received today, so its present value is Rs. 5,000 itself.
• The remaining 3 payments form an ordinary annuity of Rs. 5,000 per year for 3 years at 10% interest.
• Given
P(3,0.10)=2.48685, which is the present value factor for an ordinary annuity of 3 years at 10%.
• Present value of these 3 payments =
5000×2.48685=12434.25 Rs.
• Total present value =
5000+12434.25=17434.25 Rs.
Answer:Rs. 17,434.25