CMA Foundation · Fundamentals of Business Mathematics and Statistics · Time Value of Money and Annuity - Simple and Compound Interest
Mr. Sharma will receive Rs 53,240 exactly 3 years from now. If money earns 10% p.a. compounded annually, what is the present value of this amount?
The present value is Rs 40,000. Dividing the future sum of Rs 53,240 by 1.1 cubed, which is 1.331, gives 40,000, because compounding at 10% for three years multiplies the present sum by 1.331.
- ARs 40,000Correct
- BRs 37,268
- CRs 41,000
- DRs 44,000
Explanation
PV = 53,240 / (1.1)^3 = 53,240 / 1.331 = 40,000. Check: 40,000 x 1.331 = 53,240. Rs 37,268 results from subtracting 30% simple discount (53,240 x 0.7), which is the wrong method.
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