Ram parchased a house for which he agreed to pay rs 5000 at the beginn...
Calculating the Present Value of the House
First, we need to calculate the present value of the 10 payments of Rs 5000 each, which Ram will make over the next 2.5 years. We can use the formula for the present value of an annuity:
P = A * [1 - (1 + r)^-n] / r
Where P is the present value, A is the periodic payment (Rs 5000), r is the interest rate per period (6% / 4 = 1.5%), and n is the total number of periods (10 payments over 2.5 years, or 10/0.25 = 40 periods).
Plugging in the values, we get:
P = 5000 * [1 - (1 + 0.015)^-40] / 0.015
P = 5000 * [1 - 0.3707] / 0.015
P = 5000 * 44.53
P = Rs 222,650.00
Therefore, the present value of the 10 payments is Rs 222,650.00.
Adding the Present Value of the 10 Payments to the Down Payment
Next, we need to add the present value of the 10 payments to the down payment that Ram has already made. The question doesn't specify the amount of the down payment, so we'll assume it's also Rs 5000.
Total cash price = present value of payments + down payment
Total cash price = Rs 222,650.00 + Rs 5000
Total cash price = Rs 227,650.00
Therefore, the equivalent cash price of the house is Rs 227,650.00.
Explanation
This question asks us to calculate the equivalent cash price of a house based on a payment plan that involves periodic payments over a certain period of time. To do this, we need to calculate the present value of the future payments using an annuity formula and then add that value to the down payment to get the total cash price.
The interest rate used in the calculation is the quarterly interest rate, which is half the annual interest rate of 6%. We also assume that the down payment is the same amount as each periodic payment, but this could vary in practice.
Overall, this question tests the candidate's understanding of the time value of money and annuity calculations, which are important concepts in finance and accounting.