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    Question

    An insurance investment plan offers a maturity value of

    ₹5,00,000 after 5 years. If the opportunity cost of capital is 9% compounded annually, calculate the present value of this investment and advise whether it exceeds the investment cost of ₹3,25,000.
    A ₹3,00,000 – Overvalued Correct Answer Incorrect Answer
    B ₹3,80,000 – Marginally attractive Correct Answer Incorrect Answer
    C ₹3,24,000 – Near break-even Correct Answer Incorrect Answer
    D ₹3,50,000 – Profitable Correct Answer Incorrect Answer
    E ₹3,60,000 – Good yield Correct Answer Incorrect Answer

    Solution

    PV = 5,00,000 / (1.09)5 = 5,00,000 / 1.53862 = ₹3,24,896. Hence, marginally below investment of ₹3,25,000.

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