CS Executive · Corporate Accounting and Financial Management · Time Value of Money
Meera Traders can pay ₹1,00,000 at the beginning of each year for 5 years towards a loan carrying 10% p.a. (PVIFA 10%, 5 years = 3.7908). What is the approximate maximum loan amount these payments can fully repay?
The maximum loan is about ₹4,16,988. Because payments fall at the start of each year, they form an annuity due, so the ordinary annuity present value of ₹3,79,080 is multiplied by 1.10. Treating them as year-end payments understates the loan.
- A₹4,16,988Correct
- B₹3,79,080
- C₹5,00,000
- D₹3,44,618
Explanation
Payments at the start of each year form an annuity due, so PV = 1,00,000 × 3.7908 × 1.10 = ₹4,16,988. ₹3,79,080 treats them as year-end payments, ₹3,44,618 divides by 1.10 instead of multiplying, and ₹5,00,000 simply adds the payments.
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