Mathematics for FinancePYQ Dec 23Question 1559 of 512
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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
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Correct Answer

✅ Option a — Leasing

All Options:

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

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=2,00,000×5.216116≈10,43,223PV = 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.

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