NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Time Value of Money
Mr. Rao will receive Rs 2,42,000 exactly two years from now. If the appropriate discount rate is 10% per annum compounded annually, what is the present value of this sum?
The present value is Rs 2,00,000. Discounting Rs 2,42,000 over two years at 10% means dividing by 1.21. Working backwards, Rs 2,00,000 grows to 2,20,000 after one year and 2,42,000 after two, confirming the answer.
- ARs 2,00,000Correct
- BRs 2,20,000
- CRs 1,93,600
- DRs 2,10,435
Explanation
PV = 2,42,000 / (1.10)^2 = 2,42,000 / 1.21 = Rs 2,00,000. Check: 2,00,000 x 1.21 = 2,42,000. Rs 1,93,600 results from wrongly deducting 20% (simple discounting for two years).
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