CA Foundation · Quantitative Aptitude · Mathematics of Finance
A firm will receive ₹5,000 at the end of each of the next 2 years. At a discount rate of 10% per annum, what is the present value of these receipts?
The present value is about ₹8,678. Discount the first ₹5,000 by one year at 10%, giving ₹4,545, and the second by two years, giving ₹4,132. Adding both gives roughly ₹8,678, which is less than the undiscounted ₹10,000.
- A₹8,264
- B₹9,091
- C₹10,000
- D₹8,678Correct
Explanation
PV = 5,000/1.1 + 5,000/1.21 = 4,545.45 + 4,132.23 = 8,677.68, about ₹8,678. Option ₹8,264 is 10,000/1.21, wrongly discounting the total for two years. Option ₹9,091 only discounts one year of the total.
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