financial management

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vaseem khan (Querist)

20 March 2010 i want to know effective rate of return and the method of calulating of the following problem

initial outlay of cash rs 10000
this amt will be received in within one year in 50 weakly equal installment of Rs 230
if required u can assume interest rate as 15%
this problem relate to microfinance co.
plz
give me detail calculation
asap
wasim khan

Rahul Gupta

Rahul Gupta (Expert)

22 March 2010 For calculation of EAR with Periodic Rate of 15% use the following Formula.

EAR = {(1+Periodic Intt)(raise to power m)} -1
where m =50, peridic intt is .15/50 = .0030

Using above formula, EAR is 16.16%

2) If u are recieving Rs 230 per wek for 50 weeks then its worth as on today is 10,664 caluclated as

PV = A{1-(1+r)raise to power -n}/r

Here, A = 230, r= .15/50(weeks)=.0030 and n= 50.

It is benefil since u r paying 10,000 today where as its value as on today is 10664. So it is beneficial since u are paying less by Rs 664.

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