Question

Can u explain what is the residual value of annuity in the end of the whole...


Can u explain what is the residual value of annuity in the end of the whole term,if the residual value is 30% of the purchase price,this mean what?

Homework Answers

Answer #1

Answer

  • See Annuity is basically a "Series of Cash Flows" which can be either Inflows or Outflows depending upon your Question.
  • So "Residual Value of Annuity" tells about the LAST CASHFLOW (ie Inflow or Outflow depending upon your Question) of the Series of Cashflows that we talked in above point.
  • Lets Understand with an Example: if Mr X has an Annuity Plan for his Pension Fund, it is interpreted as he has a series of regular Cash Outflow which he has to Deposit till "n" period. And if we say that "residual value of Annuity is 30% of the Plan Amount" it would mean that last Annuity Payment would be 30% of the Total Plan Amount.
  • So in your case it says that Last Annuity Cashflow (receivable or payable as per your ques) would be 30% of the Purchase Cost.

?HOPE IT HELPS :)

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