BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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What is the present value of Rs. 5, 00, 000 to be received after 5 years assuming 10 % interest rate?( DF-.621)
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2, 35, 500
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3, 10, 500
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3, 15, 000
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3, 50, 500
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Explanation:
Detailed explanation-1: -10, 000 to be required after 5 years if the interest rate be 9%. Given that (1. 09)5=1. 5386.
Detailed explanation-2: -Suppose we take i = 10%. Then, we divide $1000 by the result of (1 + i) to the power of 5, or 1000/(1.1)⁵ We obtain $620.92, the present value of $1000 in 5 years with a rate of return of 10% annually.
Detailed explanation-3: -Following the 8% interest rate column down to the fifth period gives the present value factor of 0.68058. Multiply the $5, 000 future value times the present value factor of 0.68058 to get $3, 402.90. Remember, the present value will always be less that the future value because of interest.
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