NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Time Value of Money
Meera wants to have Rs 5,00,000 after 3 years for a down payment. Assuming an annual compounded return of 10%, approximately how much must she invest today as a lump sum?
She must invest about Rs 3,75,657 today. The present value is the target amount divided by 1.10 raised to the power 3, which is 1.331. Simple deductions or simple-interest shortcuts overstate the present value because they ignore compounding over the three years.
- ARs 3,75,657Correct
- BRs 3,84,615
- CRs 3,50,000
- DRs 4,16,667
Explanation
PV = 5,00,000 / 1.10^3 = 5,00,000 / 1.331 = Rs 3,75,657. Rs 3,84,615 is wrong because it discounts only for 1 year at 30% cumulative simple rate (5,00,000/1.3). Rs 3,50,000 deducts 30% directly, and Rs 4,16,667 divides by 1.2.
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