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MB0045 : Calculate the present value of the following options:

Posted on: October 18, 2011

MB0045 : Calculate the present value of the following options:
a) Rs. 10,000 to be received after 5 years if the prevailing rate of interest is 10%pa

b) Rs. 10,000 to be received after 5 years if the prevailing rate of interest is 10%pa payable semi annually

c) Rs. 5000 to be received every year for 5 years if the prevailing interest rate is 10% pa

d) Rs. 5000 to be received after 5 years and Rs. 10,000 to be received after 10 years

Solution:

a) Rs. 10,000 to be received after 5 years if the prevailing rate of interest is 10%pa.

 

Present valve                                      =          10, 000*PVIF (10%, 5y)

                                                =          10,000*0.621

=          6210

 

The PV of Rs. 10,000 after 5years is Rs. 6210.

b) Rs. 10,000 to be received after 5 years if the prevailing rate of interest is 10%pa payable semi annually

 

Present valve                                      =          10, 000*PVIF (5%, 10y)

                                                =          10,000*0.614

=          6140

 

The PV of Rs. 10,000 after 5years is Rs. 6140.

c) Rs. 5000 to be received every year for 5 years if the prevailing interest rate is 10% pa

 

Present valve                                      =          5, 000*PVIF (10%, 5y)

                                                =          5,000*0.621

=          3105

 

The PV of Rs. 5,000 after 5years is Rs. 3105.

d) Rs. 5000 to be received after 5 years and Rs. 10,000 to be received after 10 years

 

Present valve of annuity                   =          5, 000*PVIF (10%, 5y)

                                                =          5,000*0.621

=          3105

 

Present valve of annuity                   =          10, 000*PVIF (10%, 10y)

                                                =          10,000*0.386

=          3860

The PV of Rs. 5,000 after 5years is Rs. 3105 and PV of Rs. 10,000 after 10years is Rs.3860.

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