Equal-Payment Series Present Worth Amount Method
Equal-Payment Series Present Worth Amount
The
objective of this mode of investment is to find the present worth of an equal
payment made at the end of every interest period for n interest periods at an
interest rate of i compounded at the end of every interest period.
The corresponding cash flow diagram is shown
in Fig.
Cash flow diagram of equal payment series present worth method
Here,
P = present worth
A = annual equivalent payment
i = interest rate
n = No. of interest periods
The formula to compute P is
P = A (1
+ i)n − 1= A(P/A, i, n)
Where
(P/A, i,
n) is called equal- payment series present worth factor.
Example problem on equal-payment series present worth amount
A company wants to set up a reserve which
will help it is have an amount equivalent amount of Rs 18,00,000 for the next
20 years towards its employees welfares measures. The reserve is assumed to
grow at the rate of 18% annually. Find the single payment that must be made as
the reserve amount.
Given data
A = Rs.
18,00,000
n = 20
years
i = 18%
To find
P
Formula used
P = A
(P/A, i, n)
Solution
A = A (P/A, i, n)
=
18,00,000 (P/A, 18%, 20)
=
18,00,000 * 5.3837
A = Rs. 96,90,660
Result
A company should set up
a reserve Rs. 96,90,660 which will help it is have an amount equivalent amount
of Rs 18,00,000 for the next 20 years.
