a) In order to create an endowment, which pays Rs 500,000 per year, forever, how much money must be set aside today in the rate of interest is 10%? If the first payment of Rs 500,000 will be received after 3 years, what will be present value of such cash payment? b) Which deal is better, 8.4% compounded annually or 8.6% compounded quarterly or 8.7% compounded monthly? c) What is real interest rate if Rs. 500,000 is invest at 10% per annum for 5 years and inflation rate is 7%?
a) In order to create an endowment, which pays Rs 500,000 per year, forever, how much money must be set aside today in the rate of interest is 10%? If the first payment of Rs 500,000 will be received after 3 years, what will be present value of such cash payment? b) Which deal is better, 8.4% compounded annually or 8.6% compounded quarterly or 8.7% compounded monthly? c) What is real interest rate if Rs. 500,000 is invest at 10% per annum for 5 years and inflation rate is 7%?
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 16P
Related questions
Question
- a) In order to create an endowment, which pays Rs 500,000 per year, forever, how much money must be set aside today in the rate of interest is 10%? If the first payment of Rs 500,000 will be received after 3 years, what will be
present value of such cash payment? - b) Which deal is better, 8.4% compounded annually or 8.6% compounded quarterly or 8.7% compounded monthly?
- c) What is real interest rate if Rs. 500,000 is invest at 10% per annum for 5 years and inflation rate is 7%?
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Step 2
1 (a) Calculate PV of endowment as below:
Hence, Amount of RS 5,000,000 must be set aside today.
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