Mgt201 GDB Required – Assignments – Solution VU

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Mgt201 GDB Required – Assignments – Solution VU

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:

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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.


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Important Instructions:

  • Post your GDB comments (answer) against GDB # 01 rather than against lessons’ MDB.
  • Your discussion must be based on logical facts.
  • Do not copy or exchange your answer with other students.  Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.
  • Books, websites and other reading material may be consulted before posting your comments; but copying or reproducing the text from books, websites and other reading materials is strictly prohibited. Such comments will be marked as Zero (0) even if you provide references.
  • Obnoxious or ignoble answer should be strictly avoided.
  • Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB.

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