Question

Mr. Ahmed has just retired from a government job and he has received a handsome amount as his gratuity. He has a plan to invest his money received from gratuity for which he is in search of a profitable investment option. One of his friends has suggested him three investment options considering his aim of investment Mr. Ahmed is not aware of investment dynamics (the risk and return) therefore he needs help from someone to choose among the three available investment options: Being a student of financial management you are required to help Mr. Ahmed in choosing the best option as an investment for 10 years based on the principle of "time value of money Following is the information available about three investment options

Option 1: Deposit an amount of Rs. 120,000 at beginning of each year for the next 10 years in a saving account at ABC bank which provides 12 interest rate compounded annually.
Option 2 Deposit an amount of Rs. 50,000 at end of each year for the next 10 years in saving account of M Bank which provides 10% interest rate compounded quarterly

Option 3 Deposit an amount of Rs. 100,000 at end of each year for the next 10 years in a saving account at
N&P bank which provides 10 interest rate compounded semi-annually​

Answer 1

Answer:

go for option 1

Explanation:

because no matter what you broke asf

Answer 2

Concept:

Time Value of Money

• According to the concept of time value of money, a certain amount of money is worth more right now than it will be in the future.
• This is so because investment is the only way to make money grow. An opportunity is wasted when an investment is postponed.
• The formula for calculating the time value of money takes into account the current value, the potential future worth, the potential earnings, and the time period.
• The number of compounding periods for savings accounts also plays a significant role.

Given:

1. Deposit an amount of Rs. 120,000 at beginning of each year for the next 10 years in a saving account at ABC bank which provides 12 interest rate compounded annually.
2. Deposit an amount of Rs. 50,000 at end of each year for the next 10 years in saving account of M Bank which provides 10% interest rate compounded quarterly
3. Deposit an amount of Rs. 100,000 at end of each year for the next 10 years in a saving account at N&P bank which provides 10 interest rate compounded semi-annually.

Find:

The most profit making option.

Solution:

Option1

Amount Receivable=(Principal x Future Value Interest Factor) x (1+interest)

Amount receivable = (120000 x 17.549) x (1.12)

Amount Receivable = 23,58,586

Option 2

Amount Receivable = Principal x (1+i/4)40

Amount Receivable = 50000 x  (1+0.025)40

Amount Receivable = 134250

Option 3

Amount Receivable = Principal x (1+i/2)20

Amount receivable = 100000 x 2.6533

Amount receivable =265330

Since, Mr.Ahemad will get Rs.2358586 at the end of 10 years , hence he should go with option 1.

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