A is to pay B, Rs. 600 in 4 years time. A offers to pay up B at present where inflammation rate is 10%. What discount should B allow A?

Options

A. ₹96
B. ₹100
C. ₹120
D. data insufficient

Explanation

To solve the problem step by step, we need to calculate the present value of Rs. 600 that A is supposed to pay B in 4 years, considering the inflation rate of 10%.

### Step 1: Understand the formula for Present Value
The formula for calculating the present value (PV) when future value (FV) is known is given by:
\[ PV = \frac{FV}{(1 + r)^n} \]
where:
- \(FV\) = Future Value (Rs. 600)
- \(r\) = rate of inflation (10% or 0.10)
- \(n\) = number of years (4 years)

### Step 2: Substitute the values into the formula
Now, substituting the values into the formula:
\[ PV = \frac{600}{(1 + 0.10)^4} \]

### Step 3: Calculate \( (1 + r)^n \)
Calculating \( (1 + 0.10)^4 \):
\[ (1 + 0.10)^4 = 1.10^4 \]
Calculating \( 1.10^4 \):
\[ 1.10^4 = 1.4641 \]

### Step 4: Calculate the Present Value
Now substituting back into the present value formula:
\[ PV = \frac{600}{1.4641} \]
Calculating this gives:
\[ PV \approx 409.67 \]

### Step 5: Calculate the discount
Now, to find the discount that B should allow A, we subtract the present value from the future value:
\[ \text{Discount} = FV - PV = 600 - 409.67 \approx 190.33 \]

### Final Answer
Thus, the discount that B should allow A is approximately Rs. 190.33.