What is the present monetary value of Rs. 132 payable after 2 years at a 5% annual simple interest rate?
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Answer: C. Rs. 120
Explanation
Present value P accumulates interest over two years at five percent simple interest to reach one thirty two. Setting up the simple interest equation gives P multiplied by one plus zero point zero five times two. Dividing one thirty two by one point ten isolates the present value principal at one twenty. Present value represents the current worth of a future sum of money discounted at a given interest rate. Simple interest accumulates linearly over time based exclusively on the initial principal amount. Financial discounting is the reverse operation of calculating future interest accumulation.
Corporate finance uses present value discounting to evaluate future investment cash flows. Bond pricing models rely on present value calculations to determine fair market security values. Personal financial planning utilizes discounting concepts to understand the time value of money. Option A suggests one hundred twelve which underestimates the present value principal. Option B proposes one hundred eighteen point eighty which represents an incorrect interest deduction. Option D offers one hundred twenty two which overstates the present principal amount.
- Subject
- Mathematics
- Category
- Mathematics
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- Difficulty
- medium
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