CS Executive · Corporate Accounting and Financial Management · Time Value of Money
Using a discount rate of 10% per annum, Meera is to receive Rs 1,10,000 exactly one year from today. What is the present value of this single sum?
The present value is Rs 1,00,000, because a single sum received after one year is discounted by dividing by (1 + rate). Dividing Rs 1,10,000 by 1.10 gives Rs 1,00,000. Subtracting 10% of the future value is incorrect.
- ARs 1,00,000Correct
- BRs 99,000
- CRs 1,21,000
- DRs 1,09,000
Explanation
PV = FV / (1 + r) = 1,10,000 / 1.10 = Rs 1,00,000. Check: 1,00,000 x 1.10 = 1,10,000. Rs 99,000 wrongly subtracts 10% of the future sum instead of dividing by 1.10.
Did you get it right without looking?
One question tells you little. A timed set on Time Value of Money shows your real accuracy, how long you take and where you lose marks.
More Time Value of Money questions
- Kiran deposits Rs 20,000 at the end of each year for 3 years in a scheme earning 10% p.a. compounded annually. What is the accumulated value…
- Meera is promised Rs 13,310 three years from now. If the discount rate is 10% per annum compounded annually, what is the present value of th…
- Kaveri Industries borrows ₹5,00,000 at 10% p.a., repayable in 5 equal annual instalments at each year-end. Each instalment is about ₹1,31,89…
- Meera Traders can pay ₹1,00,000 at the beginning of each year for 5 years towards a loan carrying 10% p.a. (PVIFA 10%, 5 years = 3.7908). Wh…
- Ramesh deposits ₹50,000 in a bank for 2 years at 10% per annum compounded annually. What will be the amount at the end of 2 years?
- When the number of compounding periods per year increases, with the nominal annual rate and the time period unchanged, what happens to the f…