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P Company has to make a payment of Rs 2 million on 12th February next year
P Company has to make a payment of Rs 2 million on 12th February next year. It has surplus money today i.e. 13th November and the company has decided to invest in a certificate of deposit (CD’s) of a leading nationalized bank at 8.00 percent per annum. What money is required to be invested now? Take the year as 365 days.
Expert Solution
We know that future value after nth days = present value + present value x (interest rate/100)x n/365
No of days from 13 nov to 12 feb = 91 days
We want 20,00,000 at the end of 91 days
Let's assume the amount we need to invest today to get 20,00,000 at the end of 91 days is A.
Hence A + Ax 8/100x91/365 = 20,00,000
ie. A + Ax 0.02 = 20,00,000
i.e. A(1+0.02)= 20,00,000
i.e. A = 20,00,000/1.02
i.e. A = 1960784.31
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