24.5.2. Present Value of an Annuity (PVA)

Try these first

1. 1.

   What is PVA?

   Hint

   Think about what 'present value' means.

2. 2.

   What does PMT stand for in the PVA formula?

   Hint

   Consider the amount you receive or pay at each interval.

3. 3.

   What does PVA stand for?

   • Present Value of an Annuity
   • Present Value of an Aggregate
   • Present Value of All

   Hint

   Think about the purpose of this concept.

4. 4.

   True or False: An annuity is always made at the beginning of each period.

   • True
   • False

   Hint

   Recall the two types of annuities.

5. 5.

   Determine the present value of an annuity that pays ₹15,000 at the end of each year for 10 years at an interest rate of 7%.

   Hint

   Make sure to substitute correctly in the PVA formula.

6. 6.

   How would you adjust your PMT if the interest rate increased to 9% but you still wanted the same PVA of ₹100,000?

   Hint

   Think about how increasing the interest rate could decrease the required PMT.