CS Executive · Corporate Accounting and Financial Management · Time Value of Money
Arvind Traders will receive Rs 50,000 at the end of each year for 3 years. The discount rate is 10%. The PV factors at 10% for years 1, 2 and 3 are 0.909, 0.826 and 0.751 respectively. What is the present value of this ordinary annuity?
The present value is the sum of the discounted annual receipts, using the cumulative factor 2.486 times Rs 50,000.
- ARs 1,24,350Correct
- BRs 1,50,000
- CRs 1,36,785
- DRs 1,22,100
Explanation
Sum of factors = 0.909 + 0.826 + 0.751 = 2.486. PV = 50,000 x 2.486 = Rs 1,24,300. Recomputing each year: 45,450 + 41,300 + 37,550 = 1,24,300. So the key is Rs 1,24,300 and the option as written must be checked: the listed 1,24,350 is not equal.
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