If an amount R is paid at the end of every year for 'n' years, then the net present value of the annuity at an interest rate of i is _________________?
Correct answer: B. R [{(1 + i)n - 1}/ i (1 + i)n]
- A. R [{(1 + i)n - 1}/ i ]
- B. R [{(1 + i)n - 1}/ i (1 + i)n]
- C. R(1 + i)n
- D. R/(1 + i)n
Explanation
For payments made at each year's end, the present value is the ordinary-annuity formula, R[1 - (1+i)^(-n)]/i. This is equivalent to option b, R[(1+i)^n - 1]/[i(1+i)^n].
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