www.vustudents.ning.com

We non-commercial site working hard since 2009 to facilitate learning Read More. We can't keep up without your support. Donate.

# GDB MGT201 - Financial Management Closing Date Thursday, May 27, 2021

Disussion Topic: Compounding and Annuities

Mr. Ahmed has just retired from a government job and he has received a handsome amount as his gratuity. He has a plan to invest his money received from gratuity for which he is in search of a profitable investment option. One of his friends has suggested him three investment options considering his aim of investment. Mr. Ahmed is not aware of investment dynamics (the risk and return) therefore he needs help from someone to choose among the three available investment options.  Being a student of financial management you are required to help Mr. Ahmed in choosing the best option as an investment for 10 years based on the principle of “time value of money”. Following is the information available about three investment options:

Option 1: Deposit an amount of Rs. 120,000 at beginning of each year for the next 10 years in a saving account at ABC bank which provides 12% interest rate compounded annually.

Option 2: Deposit an amount of Rs. 50,000 at end of each year for the next 10 years in saving account of M Bank which provides 10% interest rate compounded quarterly.

Option 3: Deposit an amount of Rs. 100,000 at end of each year for the next 10 years in a saving account at N&P bank which provides 10% interest rate compounded semi-annually.

Required:

Using a common base of comparison, you are required to help Mr. Ahmed in estimating what will he get in future from the three investment options and which option he should select to get the maximum benefit from the investment. Calculations (formula and detailed working) are mandatory for each investment option. Decision to select the best option should be based on your calculations.

Views: 693

### Replies to This Discussion

Stay touched with this discussion, Solution idea will be uploaded as soon as possible in replies here before the due date.

i need mgt201 gdb please send me

MGT201 GDB Solution Idea File

MGT201_GDB_SOLUTION.pdf

# MGT201 - Financial Management Solution Spring 2021

MGT201-GDB-Solution-Spring%202021.docx

Dear Brother plz share solution today is last date of submittion

FV=PV(1+i)n

Option 1

FV=120000(1+12%)10=373200

Option 2

FV=PV(1+i/m)n*m

FV=50000(1+10%/4)10*4=134500

Option 3

FV=100000(1+10%/2)10*2=265000

option 1 must be opted

# MGT201 - Financial Management Solution Spring 2021

MGT201-GDB-Solution-Spring%202021.docx

MGT201 GDB Solution Idea File

MGT201_GDB_SOLUTION.pdf

Option 1: Deposit an amount of Rs. 120,000 at beginning of each year for the next 10 years in a saving account at ABC bank which provides 12% interest rate compounded annually.

Solution:

Cash Deposit CCF=120,000

No of years (m*n) =10

Interest rate (i/m)  =12%

Compound annually =Nill

FV=CCF

Option 2: Deposit an amount of Rs. 50,000 at end of each year for the next 10 years in saving account of M Bank which provides 10% interest rate compounded quarterly.

Solution:

Cash Deposit CCF=50,000

No of years (m*n) =10

Interest rate (i/m)  =10%

Compound Quarterly =4

Option 3: Deposit an amount of Rs. 100,000 at end of each year for the next 10 years in a saving account at N&P bank which provides 10% interest rate compounded semi-annually.

Solution:

Cash Deposit CCF=100,000

No of years (m*n) =10

Interest rate (i/m)  =10%

Compound semi-annually =2

Reason:

Option 2 is best because in option 2 profit value is high.

Option A

Cash Deposited CCF = 120,000

No of year (mxn) =10

interest Rate (i/m) = 12%

Compound annually = Nil

Formula

FV = CCF {[1+(i/m)] mxn -1} / (i/m)

FV = CFF {[1+12%]10 -1}/ (0.12)

FV = CFF {3.10584 -1}/ (0.12)

FV = CFF (17.5487)

FV = 120,000 (17.5487)

Option B

Cash Deposited CCF = 50,000

No of year (mxn) =10

interest Rate (i/m) = 10%

Compound quarterly= 4

Formula

FV = CCF {[1+(i/m)] mxn Quaretly-1} / (i/m)

FV = CCF {[+ (10%/4)]10*4 -1}/ (10%/4)

FV = CCF {[1.025]40 -1}/ (0.025)

FV = CCF {[2.685063 -1}/ (0.025)

FV = CFF {67.40252}

FV = 50,000 * 67.40252

Option C

Cash Deposited CCF = 100,000

No of year (mxn) =10

interest Rate (i/m) = 10%

Compound semi-annually= 2

Formula

FV = CCF {[1+(i/m)] mxn Quaretly-1} / (i/m)

FV = CCF {[1+(10%/2)]10*2 -1}/ (10%/2)

FV = CCF {[1.05]20 -1}/(0.05)

FV = CFF {1.65329}/ (0.05)

FV = 100,000 * 33.0658

Reason:

Option 2 is best because in option 2 profit value is high.

1

2

3

4

5

## VIP Member Badge & Others

------------------------------------

## Latest Activity

32 seconds ago
Mr. Khan! liked ＋ ꜞꜞ STrAnGEr ꜞꜞ ＋'s discussion ''جسے ننگے پاوں
38 seconds ago
Muhammad Bilal replied to BBA(6th smes)'s discussion assignment 1 spring 2021 in the group MGT402 Cost & Management Accounting
4 minutes ago
Muhammad Faizan Alam added a discussion to the group MCM301 Communication skills

### MCM301 ASSIGNMENT NO.2 | SPRING 2021 | MARKS: 15 | Due Date: 10 - August - 2021

27 minutes ago
Abia Fatima replied to BBA(6th smes)'s discussion assignment 1 spring 2021 in the group MGT402 Cost & Management Accounting
27 minutes ago
Abia Fatima joined + M.Tariq Malik's group

### MGT402 Cost & Management Accounting

27 minutes ago
Muhammad Faizan Alam and Hina Altaf are now friends
27 minutes ago
Ajeeha is now friends with + Ḱẚảḿḯ and shahzad malik
45 minutes ago