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CS Executive · Corporate Accounting and Financial Management · Time Value of Money

Anita is promised ₹1,21,000 two years from now. If her required rate of return is 10% per annum compounded annually, what is the present value of this amount?

The present value is ₹1,00,000. Discounting ₹1,21,000 for two years at 10% means dividing by 1.21. Dividing by 1.10 only once would give ₹1,10,000, which covers just one year of discounting.

  1. A₹1,00,000Correct
  2. B₹1,10,000
  3. C₹96,800
  4. D₹1,21,000

Explanation

PV = 1,21,000 / (1.10)^2 = 1,21,000 / 1.21 = ₹1,00,000. Check: 1,00,000 × 1.21 = 1,21,000. Option ₹96,800 wrongly deducts 20% simple discount (1,21,000 × 0.8), and ₹1,10,000 discounts for only one year.

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