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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

User Ashish Rathi
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1 Answer

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19 votes

Answer:

Present Value =
X [(1)/((1 + 0.12)^(1) ) + (1)/((1 + 0.12)^(2) ) + (1)/((1 + 0.12)^(3) ) + (1)/((1 + 0.12)^(4) ) + (1)/((1 + 0.12)^(5) ) ]

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 =
(X)/((1 + 0.12)^(1) ) + (X)/((1 + 0.12)^(2) ) + (X)/((1 + 0.12)^(3) ) + (X)/((1 + 0.12)^(4) ) + (X)/((1 + 0.12)^(5) )

=
X [(1)/((1 + 0.12)^(1) ) + (1)/((1 + 0.12)^(2) ) + (1)/((1 + 0.12)^(3) ) + (1)/((1 + 0.12)^(4) ) + (1)/((1 + 0.12)^(5) ) ]

⇒Present Value =
X [(1)/((1 + 0.12)^(1) ) + (1)/((1 + 0.12)^(2) ) + (1)/((1 + 0.12)^(3) ) + (1)/((1 + 0.12)^(4) ) + (1)/((1 + 0.12)^(5) ) ]

User Cahit Gungor
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