CA Foundation · Quantitative Aptitude · Mathematics of Finance
Anand Traders receives ₹7,200 at the beginning of each year for 2 years. Using a discount rate of 20% per annum, what is the present value of this annuity due?
The present value is ₹13,200. The first ₹7,200 arrives immediately and is not discounted, while the second ₹7,200 arrives after one year and is worth ₹6,000 at 20%. Adding them gives ₹13,200 for the annuity due.
- A₹11,000
- B₹13,200Correct
- C₹14,400
- D₹15,840
Explanation
The first payment is received today, so its present value is ₹7,200. The second is discounted one year: 7,200 / 1.2 = ₹6,000. The total is ₹13,200. ₹11,000 is the ordinary annuity value, which wrongly treats payments as made at year-end.
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