Goral is required to pay five equal annual payments of Rs. 10,000 each in his deposit account that pays 10% interest per year. Find out the future value of annuity at the end of five years.
Present Value Concept
After going through the process of determining the FV present money or a present series, now the process of finding out the Present Value (PV) of a future sum or a future series can be discussed. This process is in fact the reverse of compounding technique and is known as the discounting technique. As there are FVs of sums invested now, calculated as per the compounding techniques, there are also the present values of a cash flow scheduled to occur in future. The present value is calculated by discounting technique by applying the following equation.
PV= FV/ (1 + r) n