Question

Find the present value of KTC share which is expected to earn Rs. 10.50 every six months, if money is worth 8% compounded annually
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Answer 1

Answer:

Step-by-step explanation:

Step 1

Given information:

Semi-annual earnings : Rs. 10.50

Annually compounded interest : 8%

Step 2

The Present Value of this KTC shares can be computed as follows:

Effective semi annual interest rate =(1+r)6/12−1 =(1+8%)1/2−1 Interest rate=0.03923 or 3.923%Present Value of perpetuity=EarningsInterest rate=Rs.10.503.923%Present Value=Rs. 267.649

Answer 2

Given : share which is expected to earn Rs. 10.50 every six months, money is worth 8% compounded annually

To Find : present value of KTC share

Solution:

Let say present Value = P

money is worth 8% compounded annually

Earning in 6 months = Rs  10.5

Time = 6 month = (1/2) Years

Earning = Interest  = P * R * T / 100

10.5 = P * 8 * (1/2) /100

=> P = 25 x 10.5

=> P = 262.5

present value of KTC share is Rs 262.5 which is expected to earn Rs. 10.50

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