Leila aspires to buy a car worth Rs. 6,67,000 after 5 years. What is the minimum amount in Rupees that she should deposi...

Question

Leila aspires to buy a car worth Rs. 6,67,000 after 5 years. What is the minimum amount in Rupees that she should deposit now in a bank which offers 10% annual rate of interest, if the interest was compounded annually?

A. 5,00,000  B. 4,14,333  C. 4,00,000  D. 7,50,000

Accepted Answer

Minimum deposit = Rs. 4,14,333 (Option B) This is a present-value problem. Leila needs a target amount in the future; she wants to know how much to deposit today so that compound interest grows it to that target. We divide the future value by (1.1)^5.