Question

With 15% rate of interest, present value of Rs 100 earned two year later is

Answer 1

With 15% rate of interest, present value of Rs 100 earned two year later is about Rs 76.92 using simple interest and  about Rs 75.61 using compound interest

Given:

• Rate of interest = 15 %
• Value after 2 years = Rs 100

To Find:

• Present Value

Solution:

There can be two cases:

Simple Interest or Compound Interest

Case 1 : Simple Interest

Step 1:

Assume present Value = P  Rs

Step 2 :

Use formula for Simple interest

SI = P x R x T /100

Step 3:

Calculate interest by substituting R = 15 , T = 2

SI = P * 15 * 2 /100 = 0.3P

Step 4 :

Add Interest in Present value and equate with value after 2 years

P + 0.3P  = 100

Step 5 :

Solve for P

 1.3P = 100

=> P  ≈ 76.92 Rs

With 15% rate of simple interest, present value of Rs 100 earned two year later is  about Rs 76.92

Case 2 : Compound  Interest

Step 1 :

Use formula for Amount in compound interest

$A=P(1+\frac{R}{100})^T$

Step 2 :

Substitute Values and solve for P

$100=P(1+\frac{15}{100})^2$

P ≈ 75.61  Rs

With 15% rate of Compound interest, present value of Rs 100 earned two year later is about Rs 75.61