Test Index

Time Value of Money

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Question : 52 of 99

Marks: +1, -0

Find the future value of an annuity of Rs. 500 made annually for 7 years at interest rate of 14

\%

per annum [Given that

(1.14)^{7}=2.5023]

Rs. 5365.35
Rs. 5000
Rs. 5325.65
Rs.6000.35

Solution:

Concept:

The future value of an ordinary annuity is calculated using the formula:

FV = P \times \frac{(1+r)^n - 1}{r}

.

Explanation:

Given:

P = 500

,

r = 0.14

,

n = 7

, and

(1.14)^7 = 2.5023

.

First, compute

(1.14)^7 - 1 = 2.5023 - 1 = 1.5023

.

Then, divide by

r

:

\frac{1.5023}{0.14} = 10.7307142857

.

Finally, multiply by

P

:

500 \times 10.7307142857 = 5365.35714285 \approx 5365.35

.

Answer:

Rs. 5365.35

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