Test Index

Time Value of Money

Question : 51 of 99

Marks: +1, -0

10 \%

Solution:

Concept:

Depreciation reduces value by a fixed percentage each year, so past value is found by reversing the decay.

Explanation:

Let the value 3 years ago be

P

Depreciation of 10% per year means each year the value becomes

90\% = 0.9

of the previous year's value.

After 3 years, present value

= P \times (0.9)^3 = 21870

(0.9)^3 = 0.729

, so

P = \frac{21870}{0.729} = 21870 \times \frac{1000}{729}

729 \times 30 = 21870

, so

\frac{21870}{729} = 30

Hence

P = 30 \times 1000 = 30000

Answer:

Rs. 30,000

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