An investment pays Rs. 1,000, Rs. 1,200 and Rs. 1,400 at the ends of years 1, 2 and 3 respectively. At 10% interest, what is its present value?
Correct answer: B. Rs. 2,952.67
- A. Rs. 2,800.00
- B. Rs. 2,952.67
- C. Rs. 3,200.00
- D. Rs. 3,600.00
Explanation
Each payment is discounted according to its payment date: 1,000/1.10 + 1,200/(1.10)^2 + 1,400/(1.10)^3. The sum is approximately Rs. 2,952.67. Adding the payments without discounting gives the misleading figure of Rs. 3,600.
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