Question : What will be the present value of Rs. 13,230 due two years hence, when the interest is compounded at the rate of 5% per annum?
Option 1: Rs. 13,000
Option 2: Rs. 10,500
Option 3: Rs. 11,500
Option 4: Rs. 12,000
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Correct Answer: Rs. 12,000
Solution :
Let the principal be Rs. $P$.
Amount = Rs. 13,230
Rate of interest compounded annually, $R$ = 5%
Time, $n$ = 2 years
So, $13230 = P(1 + \frac{5}{100})^{2}$
⇒ $13230 = P \times \frac{21}{20} \times \frac{21}{20}$
⇒ $P =\frac{13230\times20\times20}{21\times21}$
⇒ $P =$ Rs. 12,000
Hence, the correct answer is Rs. 12,000.
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