Question

If discount rate is 12%, the present value of Rs X recieved at the end of each year for the next five years is equal to

Answer 1

Answer:

Present Value = $X [\frac{1}{(1 + 0.12)^{1} } + \frac{1}{(1 + 0.12)^{2} } + \frac{1}{(1 + 0.12)^{3} } + \frac{1}{(1 + 0.12)^{4} } + \frac{1}{(1 + 0.12)^{5} } ]$

Step-by-step explanation:

To find - If discount rate is 12%, the present value of Rs X received at the end of each year for the next five years is equal to .... ?

Solution -

We know that, formula for finding the Present vale is given by

Present value = Future value / (1 + r)ⁿ

where r is the rate of interest

and n is Number of periods

Now,

Here in the question, we have

r = 12% = 12/100 = 0.12

n = 5

Also, Given that, we have received Rs X at the end of each year

So,

Present Value = $\frac{X}{(1 + 0.12)^{1} } + \frac{X}{(1 + 0.12)^{2} } + \frac{X}{(1 + 0.12)^{3} } + \frac{X}{(1 + 0.12)^{4} } + \frac{X}{(1 + 0.12)^{5} }$

                        = $X [\frac{1}{(1 + 0.12)^{1} } + \frac{1}{(1 + 0.12)^{2} } + \frac{1}{(1 + 0.12)^{3} } + \frac{1}{(1 + 0.12)^{4} } + \frac{1}{(1 + 0.12)^{5} } ]$

⇒Present Value = $X [\frac{1}{(1 + 0.12)^{1} } + \frac{1}{(1 + 0.12)^{2} } + \frac{1}{(1 + 0.12)^{3} } + \frac{1}{(1 + 0.12)^{4} } + \frac{1}{(1 + 0.12)^{5} } ]$