Your father is 50 years old now and his plan is to retire exactly at the age of 60. His goal is to create a fund that will allow him to receive Rs15,00,000 at the time of retirement so that he can start a small business. He has searched the market and is confused between the two options:
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[*]Option 1: To deposit Rs.9,000 after every 6 months in banks A
[*]Option 2: To deposit Rs.2,000 after every 4 months in banks B Both banks assume payments at the end of respective months. As a business graduate, you have been asked to help him out as:
What interest rate assumption has the Bank A used in its offer?
What interest rate assumption has the Bank B used in its offer?
Which option is favorable?
Solution:-
1,500,000 = 9000 [(1+i/2)^10*2-1] 19%
1,500,000 = 2000 [(1+i/3)^10*3-1] 18%
18 % is the favourable option because we can get same
result with small amount of money. in first option
we ll pay 9000 * 20 = 180 000 and in second we ll pay 2000 * 30 = 60 000
in 10 years and the result is same 15 00 000. so second option is favourable
18 wala theek hay bcoz if u convert it compounded yearly rate then it comes
almost 53.20% and the other one comes 38.12% and moreover in 2nd case u invest
only 60000 whereas in the first option u have to invest 180000 so in second
option u will get more profit with less investment
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