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MGT201 Financial Management GDB Spring 2020 Solution & Discussion Last Date: 09-06-2020

Total Marks 5
Starting Date Wednesday, June 03, 2020
Closing Date Tuesday, June 09, 2020
Status Open
Question Title GDB #01
Question Description

Discussion Topic: Time Value of Money

Discussion Question:

Mr. Ahmed has just received gratuity and he is looking for a suitable investment option that will repay him in long term. He has consulted his friend to invest Rs. 100,000 out of his gratuity amount. His friend has suggested following two options:

Option 1:

Investing Rs. 100,000 at 12% interest rate compounded semiannually for 10 years.

Option 2:

Depositing half of investment amount in a saving account  for 10 years that pays 10 % interest rate compounded annually and investing remaining half amount at 12% interest rate compounded annually for 10 years.

Required:

  • Calculate the value of both investment options
  • Based on the calculation of part 1, which option Mr.Ahmed should select and why?

Note: Complete Calculations and formulas are mandatory; marks will be deducted on providing just answers).

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Replies to This Discussion

Discussion Topic: Time Value of Money
Discussion Question:
Mr. Ahmed has just received gratuity and he is looking for a suitable investment option that will repay him in long term. He has consulted his friend to invest Rs. 100,000 out of his gratuity amount. His friend has suggested following two options:
Option 1:
Investing Rs. 100,000 at 12% interest rate compounded semiannually for 10 years.
Option 2:
Depositing half of investment amount in a saving account for 10 years that pays 10 % interest rate compounded annually and investing remaining half amount at 12% interest rate compounded annually for 10 years.
Required:
Calculate the value of both investment options
Based on the calculation of part 1, which option Mr.Ahmed should select and why?
Note: Complete Calculations and formulas are mandatory; marks will be deducted on providing just answers).
Option 1
100000*0.12*2*10 = Rs.240000
Total Value =100000+240000 = Rs.340000
Option 2
50000*0.1*10 = Rs.50000
50000*0.12*10 = Rs.60000
Total Value = 100000 + 50000 + 60000 = Rs 210000
Select option 2 because the Total Value of this option is more than option 1

MGT201 GDB Solution Spring 2020

Download the file, Click on the below link

MGT201_GDB_Solution_Spring_2020

solution of GDB is attached

Attachments:

Discussion Topic: Time Value of Money
Discussion Question:
Mr. Ahmed has just received gratuity and he is looking for a suitable investment option that will repay him in long term. He has consulted his friend to invest Rs. 100,000 out of his gratuity amount. His friend has suggested following two options:
Option 1:
Investing Rs. 100,000 at 12% interest rate compounded semiannually for 10 years.
Option 2:
Depositing half of investment amount in a saving account for 10 years that pays 10 % interest rate compounded annually and investing remaining half amount at 12% interest rate compounded annually for 10 years.
Required:
Calculate the value of both investment options
Based on the calculation of part 1, which option Mr.Ahmed should select and why?
Note: Complete Calculations and formulas are mandatory; marks will be deducted on providing just answers).
Option 1
100000*0.12*2*10 = Rs.240000
Total Value =100000+240000 = Rs.340000
Option 2
50000*0.1*10 = Rs.50000
50000*0.12*10 = Rs.60000
Total Value = 100000 + 50000 + 60000 = Rs 210000
Select option 1 because the Total Value of this option is more than option 2

Which formula is used here pls explain 

100000*0.12*2*10 = Rs.240000

50000*0.1*10 = Rs.50000

see the question option 1 & 2

amount*interest rate*time*semi annually(1/2*4)

amount = 100000

interest rate = 12% or 12/100 = 0.12

time = 10 years

Half of 100000*interest rate*time

100000*1/2= Rs.50000

interest rate = 10% or 10/100 = 0.1

Time = 10 years

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