Mathematics of FinanceMCQPYQ 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 $10$ years at annual rent of $2,00,000$ or by purchasing the space for $22,00,000\displaystyle . If person can borrow money at $14\% compounded per annum. Which alternate is most suitable?

Select Your Answer (Keyboard: A, B, C, D)
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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 ×\displaystyle \times P(n, i) Given: * Annual rent (R\displaystyle R) = $2,00,000$ * Time (n\displaystyle n) = $10$ years * Interest rate (i\displaystyle i) = $14\%\displaystyle p.a. = $0.14 * Annuity factor P(10,0.14)≈5.216116\displaystyle P(10, 0.14) ≈\displaystyle \approx 5.216116 Substituting the values: PV=2,00,000×5.216116≈10,43,223PV = 2,00,000 ×\displaystyle \times 5.216116 ≈\displaystyle \approx 10,43,223 Since the Present Value of leasing ($10,43,223$) is significantly less than the purchase price ($22,00,000$), 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

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