NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Time Value of Money
Ms. Kavita wants Rs 2,42,000 exactly 2 years from now. The bank offers 10% per annum compounded annually. How much must she deposit today?
She must deposit Rs 2,00,000 today. Discounting Rs 2,42,000 for two years at 10% means dividing by 1.21. Discounting for only one year would wrongly give Rs 2,20,000.
- ARs 2,00,000Correct
- BRs 2,20,000
- CRs 1,93,600
- DRs 2,02,000
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 2,20,000 results from discounting for only one year.
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