Seniors please solve this question

#1
I have found this questions in NCFM mock paper but not able to sort it out please solve it with explanation like which formula and step by step solution

What is the present value of Rs. 6000 receivable after two years at a discount rate of 5% under continuous discounting

Thanks in advance
 

rvm123

Active Member
#2
5442.18
Rs.100/- will become Rs.105/- in one year and 110.25 in 2 years under continuous discounting. So 100 / 110.25 X 6000 will be Rs.5442.18
 

adityasaraf007

Well-Known Member
#3
5442.18
Rs.100/- will become Rs.105/- in one year and 110.25 in 2 years under continuous discounting. So 100 / 110.25 X 6000 will be Rs.5442.18
Dear rvm,
It's incorrect. The question asks for continuous discounting. Continuous Discounting means that their would be continuous compounding of the money; ie; every second, every milli-second, every mili-milli-second, etc. Whereas, what you have done is Annual Compounding. I hope you get the point.

So, in mathematics, we use the Concept of "e" (Exponentiation), to calculate the value under Continuous Compounding.

So, the answer to this question would be:

= 6000/[(e^0.05)^2]
= 6000/[1.05127^2] .......... (The value of e^0.05 is 1.05127, it must be supplied in the question)
= 5429.04
 

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