Mathematics of FinanceMCQPYQ Jun 24Question 1478 of 512
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What is the present value of 5,000\displaystyle 5,000 to be obtained after six years if the interest rate is 5%\displaystyle 5\% per annum? for n=6,7,8,9\displaystyle n=6, 7, 8, 9 respectively. frac1(1.05)n=0.74261,0.71068,0.67686,0.64462\displaystyle \\frac{1}{(1.05)^n} = 0.74261, 0.71068, 0.67686, 0.64462

Options

A3,731\displaystyle 3,731
B3,553\displaystyle 3,553
C3,384\displaystyle 3,384
D3,223\displaystyle 3,223
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Correct Answer

Option a3,731\displaystyle 3,731

All Options:

  • A3,731\displaystyle 3,731
  • B3,553\displaystyle 3,553
  • C3,384\displaystyle 3,384
  • D3,223\displaystyle 3,223

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Detailed Solution & Explanation

The present value (PV\displaystyle PV) of a single future cash flow FV\displaystyle FV to be received after n\displaystyle n years at interest rate i\displaystyle i is: PV=FV(1+i)nPV = \frac{FV}{(1+i)^n} Given: * Future Value (FV\displaystyle FV) = 5,00,000\displaystyle 5,00,000 * Time (n\displaystyle n) = 6\displaystyle 6 years * Discount factor 1(1.05)6=0.74261\displaystyle \frac{1}{(1.05)^6} = 0.74261 Substituting the values: PV=5,000×0.74261=3713.05PV = 5,000 \times 0.74261 = 3713.05 The calculated value is approximately 3,713\displaystyle 3,713, which is closest to Option A (3,731\displaystyle 3,731). Hence, **Option A** is the correct answer.

About This Chapter: Mathematics of Finance

Paper

Paper 3: Quantitative Aptitude

Weightage

12-16 Marks

Key Topics

Simple & Compound Interest, Annuity, Perpetuity

The most important mathematical chapter in the entire syllabus. It covers Simple Interest (SI), Compound Interest (CI), Nominal vs Effective rates, Present and Future Value, Annuities (Ordinary and Due), Sinking Funds, and Perpetuities. The concepts learned here are applied heavily in CA Intermediate and Final.

View Official ICAI Syllabus

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