Aptitude - True Discount - Discussion

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.

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.

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.

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

Please explain step by step easy English.

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.

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?

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.

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.

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.