Mathematics of FinanceMCQMTP Apr 21Question 1571 of 512
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money at 14%\displaystyle 14\% compounded annually? [ P(4,0.14)=2.9137\displaystyle P(4,0.14) = 2.9137 ]

Options

ALeasing is not preferable
BLeasing is preferable
CCannot be determined
DNone of these above.
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Correct Answer

Option bLeasing is preferable

All Options:

  • ALeasing is not preferable
  • BLeasing is preferable
  • CCannot be determined
  • DNone of these above.

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Detailed Solution & Explanation

To determine which course of action is preferable, we compare the purchase price (4,000\displaystyle 4,000) with the Present Value (PV\displaystyle PV) of the lease rentals: PV=R×P(n,i)PV = R \times P(n, i) Given: * Annual lease rental (R\displaystyle R) = 1,250\displaystyle 1,250 * Time (n\displaystyle n) = 4\displaystyle 4 years * Interest rate (i\displaystyle i) = 14%\displaystyle 14\% p.a. = 0.14\displaystyle 0.14 * Annuity factor P(4,0.14)=2.9137\displaystyle P(4, 0.14) = 2.9137 Substituting the values: PV=1,250×2.9137=3,642.13PV = 1,250 \times 2.9137 = 3,642.13 Since the Present Value of leasing (3,642.13\displaystyle 3,642.13) is less than the purchase price (4,000\displaystyle 4,000), leasing is preferable. Hence, **Option B** 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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