Question : What is the approximate present value (in INR lakh) of an income of INR 2.1 lakh to be received after 2 years if the rate of interest is 5% per annum compounded annually?
Option 1: 1.815
Option 2: 1.975
Option 3: 1.725
Option 4: 1.905
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Correct Answer: 1.905
Solution :
Given:
Amount = INR 210000
Time = 2 years
Rate = 5%
$\text{Total Amount}=\text{Principal}×(1+\frac{\text{Rate}}{100})^{\text{Time}}$
⇒ $210000=\text{Principal}×(1+\frac{5}{100})^2$
⇒ $\text{Principal} = \frac{210000×20×20}{21×21}$
$\therefore \text{Principal}= INR 190476.2 \approx 1.905$ lakhs
Hence, the correct answer is 1.905.
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