MGT 201 GDB (FINANCIAL MANAGEMENT)

Solution:
Part 1:
Total investment = 100,000/- interest rate = 12% n = 10 year Semiannually

FV = PV (1+ i / 2) 2n
FV = 100,000 (1+ 0.12/2) 2*10
FV = 100,000 (1.06) 20
FV = 100,000 *3.20713547
FV = 320,713.547 A

Part 2:
Amount in saving account = 100,000/2 = 50,000 N= 10 years I = 10 % Annually
Remaining Amount = 100,000 – 50,000 = 50,000 N = 10 years I = 12% Annually

FV = PV + (PV * I * N)
FV = 50,000 + (50,000 *0 .10 * 10)
FV = 50,000 + 50,000
FV = 100,000
And
FV = PV (1+ I) N
FV = 50,000 (1 + 0.12) 10
FV = 50,000 * 3.10584821
FV = 155,292.41
Total FV = 100,000 + 155,292.41 = 255,292.41 B
ANSWER: Mr. Ahmed should use option A. Because the value of A (320,713.547) is more
than B (255,292.41) which shows that if Mr. Ahmed invests in A he will Get more profit as
compared to B.