Test Index

Time Value of Money

Question : 9 of 99

Marks: +1, -0

\text{₹} 16047

12 \%

compounded quarterly is

Solution:

Concept:

Present value using compound interest formula for quarterly compounding.

Explanation:

Given future value (FV) = ₹16047, time

t = 4

years, rate

r = 12\% = 0.12

, compounded quarterly (

n = 4

Number of periods:

n \times t = 4 \times 4 = 16

Quarterly rate:

\frac{r}{n} = \frac{0.12}{4} = 0.03

Present value formula:

PV = \frac{FV}{(1 + \frac{r}{n})^{nt}} = \frac{16047}{(1.03)^{16}}

Compute

(1.03)^{16}

(1.03)^2 = 1.0609

(1.03)^4 = 1.1255

(1.03)^8 = 1.2668

(1.03)^{16} = 1.6047

(approx).

Thus

PV \approx \frac{16047}{1.6047} = 10000

Answer:

₹10000, which corresponds to option B.

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