CA Foundation · Quantitative Aptitude · Mathematics of Finance
Anita is to receive ₹7,200 at the beginning of each year for 2 years. At a discount rate of 20% per annum compounded annually, what is the present value of these receipts?
The present value is ₹13,200. Because the payments fall at the beginning of each year, the first is not discounted at all (₹7,200) and the second is discounted for one year (₹6,000). Adding them gives ₹13,200.
- A₹11,000
- B₹12,000
- C₹14,400
- D₹13,200Correct
Explanation
The first payment is made today, so its present value is ₹7,200. The second is discounted one year: 7,200/1.2 = 6,000. Total = 7,200 + 6,000 = ₹13,200. The figure ₹11,000 treats the payments as an ordinary annuity (6,000 + 5,000), which is wrong because the payments fall at the start of each year.
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