Pv calculation

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

07 March 2013 I want to purchae one asset. Two options are available for me. Either to make up front payment or deffer it.
It is agreed with the supplier to pay Rs. 1,00,000 after 28 months. Present rate of interest for my FD is 9% p.a.
Now if I want to make up front payment what would be the present value of Rs. 1,00,000 to be paid after 28 months. FD interest is compounded quarterly.
I am finding difficulty in calculation of PV. Can anybody help me in this? What is the formula to be used?

CA Suraj Lakhotia

CA Suraj Lakhotia (Expert)
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07 March 2013 The present value is 81,247/-

The formula is -

Future Value/(1+rate)^n

Rate = 9%/4
n= 28/3

You can also use excel to get the present value.

Querist : Anonymous

Querist : Anonymous (Querist)

15 March 2013 Thank You sir.
Here we have calculated present value by discounting future value at nominal interest rate of 9% compunded quarterly. But what about inflation? Is it not necessary to adjust this nominal interest rate by inflation rate to arrive real interest rate?

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CA Suraj Lakhotia

CA Suraj Lakhotia (Expert)
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15 March 2013 Real inflation can be factored in. However whether to purchase outright or defer the payment, you would take opportunity cost of funds.

Querist : Anonymous

Querist : Anonymous (Querist)

19 March 2013 Yes, you are right.
Thanks