Mathematics of FinanceMCQPYQ Dec 23Question 1559 of 512
All Questions

A person wants to open a shop have two options to acquire a commercial space either by leasing for 10\displaystyle 10 years at annual rent of 2,00,000\displaystyle 2,00,000 or by purchasing the space for 22,00,000\displaystyle 22,00,000. If person can borrow money at 14%\displaystyle 14\% compounded per annum. Which alternate is most suitable?

Options

ALeasing
BPurchase
CCan't say
DData insufficient
For any discrepancies in this question, email contact@cadada.in

Correct Answer

Option aLeasing

All Options:

  • ALeasing
  • BPurchase
  • CCan't say
  • DData insufficient

Ad

Detailed Solution & Explanation

To compare the two options, we find the Present Value (PV\displaystyle PV) of the lease payments: PV=R×P(n,i)PV = R \times P(n, i) Given: * Annual rent (R\displaystyle R) = 2,00,000\displaystyle 2,00,000 * Time (n\displaystyle n) = 10\displaystyle 10 years * Interest rate (i\displaystyle i) = 14%\displaystyle 14\% p.a. = 0.14\displaystyle 0.14 * Annuity factor P(10,0.14)5.216116\displaystyle P(10, 0.14) \approx 5.216116 Substituting the values: PV=2,00,000×5.21611610,43,223PV = 2,00,000 \times 5.216116 \approx 10,43,223 Since the Present Value of leasing (10,43,223\displaystyle 10,43,223) is significantly less than the purchase price (22,00,000\displaystyle 22,00,000), leasing is the most suitable alternative. 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

Exam Strategy Tip

Guaranteed 12-16 marks. Master your calculator! Learn the 'GT' and compound interest M+/M- tricks to solve annuity questions in 10 seconds without writing long formulas.

Related Comparison Tables

More Questions from Mathematics of Finance

Ready to Master Mathematics of Finance?

Practice all 512 questions with instant feedback, earn XP, track your streaks, and ace your CA Foundation exam.

Start Practicing — It's Free