Accumulated value

The Accumulated Value of an immediate annuity of Rs. C and

at r% rate of compound interest is given by
1+𝑖 𝑛−1
𝐴𝑐𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑒𝑑 𝑉𝑎𝑙𝑢𝑒 = 𝐶[ 𝑖
]

Anil Khadse NKTT/ Maths & Stats

Example
Sunita deposited Rs 10000 at the end of every year in a bank offering
compound interest at 8% p.a. What will be the accumulated sum after 5
years?

Given: Annuity C=10000, n= 5 , r = 8%, i=r/100 = 0.08

1+𝑖 𝑛−1
𝐴𝑐𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑒𝑑 𝑉𝑎𝑙𝑢𝑒 = 𝐶[ 𝑖 ]
1+0.08 5−1
𝐴𝑐𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑒𝑑 𝑉𝑎𝑙𝑢𝑒 = 10000[ 0.08 ]
1.08 5−1
= 10000[ 0.08 ]
= 10000[ 1.469328 0.08
−1
]
0.469328
= NKTT/
Anil Khadse 10000
Maths & Stats
0.08
= 58666
Example
Harsh opened a recurring deposit in a bank for 4 years with payments of
Rs. 5,000 paid at the end of every year. Find the money he will get at the
end of period with 6% p.a

Given: Annuity C=5000, n= 4 , r = 6%, i=r/100 = 0.06

1+𝑖 𝑛−1
𝐴𝑐𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑒𝑑 𝑉𝑎𝑙𝑢𝑒 = 𝐶[ 𝑖 ]
1+0.06 4−1
𝐴𝑐𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑒𝑑 𝑉𝑎𝑙𝑢𝑒 = 5000[ 0.06 ]
1.06 4−1
= 5000[ 0.06 ]
= 5000[ 1.262476 0.06
−1
]
0.262476
=NKTT/5000
Anil Khadse Maths & Stats
0.06
= 21873
Example What sum should be set aside at the end of each year for 4 years at
10% p.a compound interest, to replace the machinery which is expected to
cost Rs. 50,00,000 at that time?
Given: A=500000, n= 4 , r = 10%, i=r/100 = 0.10, Annuity C=?
1+𝑖 𝑛−1
𝐴𝑐𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑒𝑑 𝑉𝑎𝑙𝑢𝑒 = 𝐶[ 𝑖 ]
1+0.10 4−1
50,00,000 = 𝐶[ 0.10
]
1.10 4−1
= 𝐶[ 0.10 ]
1.4641 −1
= 𝐶[ 0.10 ]
5000000 = 𝐶 4.641
𝐶 = 10,77,354.02
Anil Khadse NKTT/ Maths & Stats
Example # What amount should be deposited at the end of each
year for 4 years so as to receive one time maturity Rs. 50000/-
at rate of 10% compounded yearly?
Given: A =50000, n= 4 , r = 10%, i=r/100 = 0.10
1+𝑖 𝑛−1
𝐴𝑐𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑒𝑑 𝑉𝑎𝑙𝑢𝑒 = 𝐶[ 𝑖 ]
1+0.10 4−1
50000 = 𝐶[ 0.10 ]
1.10 4−1
= 𝐶[ 0.10 ]
1.4641 −1
= 𝐶[ 0.10 ]
50000 = 𝐶 4.641
𝐶 = 10,773.54
Anil Khadse NKTT/ Maths & Stats
Present Value(PV) of an Annuity
Present Value of an Annuity is given by
1+𝑖 𝑛−1
𝑃𝑉 = 𝐶[ 𝑖 1+𝑖 𝑛 ]

Anil Khadse NKTT/ Maths & Stats

Example # What is the present worth of annuity of Rs. 25,000
per year for 3 years with 9% rate of interest compounded
annually?
Given: Annuity C =25000, n= 3 ,r = 9%, i=r/100 = 0.09, PV =?
1+𝑖 𝑛−1 1+0.09 3−1
𝑃𝑉 = 𝐶[ 𝑖 1+𝑖 𝑛
] = 25000[0.09 1+0.09 3]
1.09 3−1
= 25000[0.09 1.09 3]
1.295029 −1
= 25000[0.09 1.295029 ]
0.295029
= 25000[ 0.116552 ]
= 25000 2.531307
Anil Khadse NKTT/ Maths & Stats = 63,282.697
Example # . What amount should be deposited in the bank so as
to receive Rs.15000/- at the end of every year over the period of 4
years @ 14% compounded yearly?
Given: Annuity C =15000, n= 4 ,r = 14%, i=r/100 = 0.14, PV =?
1+𝑖 𝑛−1 1+0.14 4−1
𝑃𝑉 = 𝐶[ 𝑖 1+𝑖 𝑛
] = 15000[0.14 1+0.14 4]
1.14 4−1
= 15000[0.14 1.14 4]
1.688960 −1
= 15000[0.14 1.688960 ]
0.688960
= 15000[ 0.2364544 ]
= 15000 2.9137119
Anil Khadse NKTT/ Maths & Stats = 43,705.6785
Example# What is the present value of a series of cash flow of
Rs 50,000 per year for 4 years with 8% rate of interest
compounded annually.
Given: Annuity C =50000, n= 4 ,r = 8%, i=r/100 = 0.08, PV =?
1+𝑖 𝑛−1
𝑃𝑉 = 𝐶[ 𝑖 1+𝑖 𝑛
]

Anil Khadse NKTT/ Maths & Stats

Equated Monthly Instalment (EMI)
Loan taken from any financial institution is repay by equal
monthly instalment
Method: 1. Reducing Balance Method
2. Flat Interest Rate Method
By Reducing Balance Method EMI ( C as Annuity ) is given by

1+𝑖 𝑛−1
𝑃𝑉 = 𝐶[ 𝑖 1+𝑖 𝑛 ]

Anil Khadse NKTT/ Maths & Stats

Example # Mr. Amol tooks a loan of Rs. 80,000 from bank for the
period of 2 years at 12% p.a. Find EMI using reducing balance
Method.
Given: PV =80000, n= 2 , r = 12%, i=r/100 = 0.12, C =?
n= 2x12 =24 month
r = 12%, , But for monthly i=0.12/12 =0.01
1+𝑖 𝑛−1
𝑃𝑉 = 𝐶[ 𝑖 1+𝑖 𝑛 ]

1+0.01 24−1
80000 = 𝐶[0.01 1+0.01 24]
Anil Khadse NKTT/ Maths & Stats
 1.01 24−1
80000 = 𝐶[0.01 1.01 24]
1.26973465 −1
80000 = 𝐶[ 0.01 1.269734 ]
0.26973465
80000 = 𝐶[0.0126973465]
80000 = 𝐶[21.2433564]
80000
=𝐶
21.2433564
𝐸𝑀𝐼 = 3765.88325
Anil Khadse NKTT/ Maths & Stats
Example # A loan of Rs. 30,000 is to be returned in 4 monthly
instalment at 12% p.a. compounded monthly Find EMI using
reducing balance Method.
Given: PV =30000, n= 4 month , r = 12%, i=r/100 = 0.12,
C =?

But for monthly i=0.12/12 =0.01

1+𝑖 𝑛−1
𝑃𝑉 = 𝐶[ 𝑖 1+𝑖 𝑛 ]

1+0.01 4−1
30000 = 𝐶[0.01 1+0.01 4]
Anil Khadse NKTT/ Maths & Stats
 1.01 4−1
30000 = 𝐶[0.01 1.01 4]
1.04060401 −1
30000 = 𝐶[0.01 1.04060401 ]
0.04060401
30000 = 𝐶[0.0104060401]

30000 = 𝐶[3.90196555]

𝐸𝑀𝐼 = 7688.43

Anil Khadse NKTT/ Maths & Stats