A man purchased a cow for Rs. 3000 and sold it the same day for Rs. 3600, allowing the buyer a credit of 2 years. If the rate of interest be 10% per annum, then the man has a gain of:

Buyer purchase for Rs.3000 on credit basis so he is liable to pay Rs.600 as interest for 2 years. i.e. 3000*2*10/100=600. On the other hand, he sold on that day for Rs. 3600 which bouht for Rs.3000 so he got Rs.600 as profit.

Now, see he got Rs. 600 as profit on the purchasing day but he pays Rs.600 as interest after 2 years. so, no profit for him.

Credit terms for first purchaser have not mentioned.

Sangeetha said:
(Sun, Sep 18, 2011 10:28:24 AM)

Here it's not specified that the first man bought it for credit.

Sirisha said:
(Fri, Sep 30, 2011 09:09:01 PM)

Why don't we think that the second man bought it for credit ?

Arpan said:
(Sun, Oct 16, 2011 12:01:53 PM)

The seller made a profit of Rs.600 on the selling day, but he did that on credit of 2 years with an interest rate of 10%.

i.e 3000*10/100=300 for 1 year
for 2 years it will be 300*2=600

So, in gross he got nothing as interest as it was its future amount = 3600 after 2 years.

Arun Edathara said:
(Thu, Nov 3, 2011 06:10:53 PM)

There is Easy way to understand that is 3000*10/100*2=600.

So there is no profit.

Arvind said:
(Sun, Nov 13, 2011 05:42:22 PM)

As you buy anything (cow in above quest.) today you used the from not kept as it is thats why 600 may be considered as profit is it or not?

Sagar said:
(Fri, Dec 16, 2011 01:59:03 AM)

@Nagarajan

Thanks a lot, your explanation helped me alot :-)

Simranjeet Singh said:
(Wed, Feb 22, 2012 07:26:48 PM)

@Nagarajan

Its the correct Exlanation

Satya said:
(Fri, May 11, 2012 11:24:40 AM)

Present value=future value/ (1+r/100) ^n.
With this it is coming 2974 for present value of 3600?

Aurum said:
(Mon, Jul 30, 2012 12:11:35 AM)

@Nagarajan
Thanks for help

Vignesh Jagan said:
(Mon, Aug 5, 2013 09:09:25 AM)

100 x Amount/100 + (R x T).

Dhruv Mahajan said:
(Fri, Oct 4, 2013 10:29:25 PM)

On what basis did we decide that we need to calculate Simple Interest and not Compound Interest?

Pat* said:
(Fri, Dec 6, 2013 12:15:26 AM)

Am lost help me out. How do you come up with 0%. Use a simple elaboration please.

Harry said:
(Mon, May 26, 2014 05:04:02 PM)

In my understanding, the man has purchase the cow for 3000 and sold it on the same day for 3600 which means a straight gain of 600 plus the interest of 10% per annum on 3600 which comes to 720 in 2 years.

Raga said:
(Mon, Jun 23, 2014 08:13:47 PM)

I am too weak in maths so please explain in detail. I don't know why 600 is consider as profit. After 2 years I got 3600. But he bought the cow for 3000 only.

Amanda said:
(Thu, Sep 11, 2014 04:52:57 PM)

I think it means:.

If I did not buy that cow, but I deposited it into the bank, then after 2 years I will be able to get 3600 dollar. (because of interest).

So now I decide not to put the money into the bank but instead buy the cow, which would also give me 3600 2 years later.

So profit is 0.

Anil said:
(Sun, Sep 21, 2014 09:41:59 AM)

Simple:

For the amount of 3000 per year 10% interest means = 300.

Then for 2 years = 2x300 = 600.
So buyer have to credit to him 3600.
As per the question he sold at 3600.
Therefore no gain for the seller.

Xyz said:
(Thu, Sep 25, 2014 01:05:16 PM)

I think it means that the buyer is paying the man $3600 two years later,

So the present value of the $3600 is ($3600/(1+0.1*2)) = $3000.

SO when you consider the present value of $3600, the man actually has $0 gain.

Jok said:
(Sun, Nov 2, 2014 07:01:34 AM)

The way I saw it, a buyer is buying on credit, not the man.

Plus is it clear if buyer is paying an interest rate of 10%, because you're only calculating an interest rate as seller's loss?

Lavender said:
(Mon, Dec 15, 2014 10:16:33 PM)

Very confusing how this one is worded. It was not clear at all which man was buying on credit. If the first man paid in full the 3000 then in turn sold it to the other man for 3600, then he would have had a profit.

I think this one should be reworded to make it clear that BOTH men were buying on credit.

Buddhika said:
(Thu, Dec 25, 2014 06:58:13 PM)

Please explain step by step easy English.

Naveen said:
(Sat, May 2, 2015 09:27:22 PM)

Can anyone please tell me what does 'Credit of 2 years' means?

Komal said:
(Thu, May 28, 2015 01:08:31 AM)

Present value of 3600 which is going to be received in future with interest is 3000. It means the value of money decreases as time pass on.

In other language future 3600 plus interest is equal to 3000 in present time because of that man has a gain of 0% and the present value of the future amount will be calculated by this formula: Present Value = Future Value/(1+r/100)^n.

3600 this will be got after two years. So if we want to know the gain/profit we have to calculate the present value of 3600.

The formula of Present value (if not compounding):

Pv = fv/(1+r*n).
= 3600/(1+0.10*2).
= 3000.

So gain 0.

Zaid said:
(Sun, Nov 8, 2015 06:26:30 PM)

I would explain this one, here is concept of Future Value & present value, If the person sold on the same day then he would get 600 as profit but here is term of 10% per annum interest which is time value of money, after two year he will get 600 as interest not as profit. So no profit no loss.

If we calculate 10 per annum interest for 2 years then we will get 600 or you may cross verify by finding the present value of 3600. It means if we discount the future cash flows we will get today value which is Rs. 3000. In short, we have to differentiate today profit & discounted value of future cash flows wink emoticon.