P Company has to make a payment of Rs 2 million on 12th February next year

Finance Jan 08, 2021

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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