What happens to future values-what happens to present value

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Reference no: EM131869171

People of India can invest in a savings instrument called the Ksan Vikas Patra (KVP). This investment is available through the post office and is backed by the Government of India. In January 2010 investment in KVP was guaranteed to double your money in eight years and seven months. An investor in KVP could pay a thousand rupees on January 25, 2010, for the promise of two thousand rupees on August 24, 2018. A security like KVP, for which you pay some amount today in exchange for a promised lump sum to be received at a future date, is about the simplest possible type of security

Required ( Answer the questions in details in your own words in a financial management way )

1- As you increase the length of time involved, what happens to future values? What happens to present value?

2- What happens to a future value if you increase the rate, r? What happens to a present value?

3- Why would Government of India be willing to accept Rs. 1,000 today in exchange for a promise to repay twice that amount in the future? What would be the key considerations in answering yes or no? Would your answer depend on who is making the promise to pay?

4- Is giving up Rs. 1,000 in exchange for Rs. 2,000 in 8 years and 7 months a good deal? What are the plus side and the downside for this investment?

Reference no: EM131869171

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