NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Time Value of Money
Meera wants Rs 10,00,000 exactly 2 years from now for her daughter's fees. The investment earns 10% per annum compounded annually. Approximately how much must she invest today as a lump sum?
She must invest about Rs 8,26,446. The present value of Rs 10,00,000 due in two years at 10% compounded annually is found by dividing by 1.10 squared, which is 1.21, giving roughly Rs 8,26,446.
- ARs 8,00,000
- BRs 8,26,446Correct
- CRs 8,33,333
- DRs 9,09,091
Explanation
PV = 10,00,000 / (1.10)^2 = 10,00,000 / 1.21 = 8,26,446. Rs 8,33,333 discounts for only a simple 20% (dividing by 1.2). Rs 9,09,091 discounts for just one year. Rs 8,00,000 deducts 20% directly, which is wrong.
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