CA Foundation · Quantitative Aptitude · Mathematics of Finance
Mr. Agarwal will receive ₹1,21,000 exactly two years from today. If money earns 10% per annum compounded annually, what is the present value of this amount?
The present value is ₹1,00,000. Discounting ₹1,21,000 for two years at 10% compound means dividing by 1.10 squared, which is 1.21. Dividing gives exactly ₹1,00,000, and growing it at 10% for two years returns ₹1,21,000.
- A₹1,00,000Correct
- B₹1,00,833
- C₹96,800
- D₹1,10,000
Explanation
PV = 1,21,000 / (1.10)^2 = 1,21,000 / 1.21 = ₹1,00,000. Check: 1,00,000 × 1.21 = 1,21,000. Option ₹96,800 comes from subtracting 20% simple discount (1,21,000 × 0.8), which is wrong.
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