Sheela needs rs 500000 at the end of 5 years . how much amount she should invest right now @10%. present value of 1 rs at 10% for 5 years is .6209
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Rs 1 has a present value of 0.6209
This means: 0.6209 after 5 yrs will become 1 Rs.
This can be explained as:
0.6209 [ 1 + 10% ] ⁵
0.6209 [ 1 + 0.1 ] ⁵
0.6209 [ 1.1 ] ⁵ = 0.6209 [ 1.61051 ]
This will come out to be 1
So, we can also write
0.6209 = 1 ÷ [ 1 + 10% ]⁵
Here, LHS = Present Value and RHS = Future Value ÷ [1 + r] ⁿ where r = rate, and n = time
So,
500000 = Future Value, Present Value we have to find
PV = 500000 ÷ [ 1 + 10% ] ⁵
PV = 500000 ÷ [1.1]⁵
PV = 500000 ÷ (1.61051)
PV = 310460.6615
She will need to invest 310460.6615 to get 500000 after 5 yrs
This means: 0.6209 after 5 yrs will become 1 Rs.
This can be explained as:
0.6209 [ 1 + 10% ] ⁵
0.6209 [ 1 + 0.1 ] ⁵
0.6209 [ 1.1 ] ⁵ = 0.6209 [ 1.61051 ]
This will come out to be 1
So, we can also write
0.6209 = 1 ÷ [ 1 + 10% ]⁵
Here, LHS = Present Value and RHS = Future Value ÷ [1 + r] ⁿ where r = rate, and n = time
So,
500000 = Future Value, Present Value we have to find
PV = 500000 ÷ [ 1 + 10% ] ⁵
PV = 500000 ÷ [1.1]⁵
PV = 500000 ÷ (1.61051)
PV = 310460.6615
She will need to invest 310460.6615 to get 500000 after 5 yrs
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