TIME VALUE OF MONEY
Q.1. Find out the Future value of Rs. 1,000 at 10% after 7 years ?
Q.2. Find out the future value of Rs. 5,000 at 11% after 9 years ?
Q.3. Find out the future value of Rs. 50,000 at 16% after 3 years ?
Q.4. A Deposit of Rs. 1,000 is made to earn interest a 12% p.a. compounded half yearly. Find out its F.V ?
Q.5. A deposit of Rs. 10,000 is made in bank for a period of 1 year. The bank after two options.
(i) to receive interest at 12% p.a. compounded monthly or
(ii) to receive interest at 12.25% p.a. compounded half- yearly. Which option should be accepted ?
Ans. 12.68 or 12.63%.
Q.6. A company is offered a contract which has the following terms. An immediate cash outlay of Rs.15,000 followed by a cash inflow of Rs.17,900 after 3 years. What is the company’s rate of return on this contract?
Q.7. A deposit of Rs. 1,000 each year is to be made at the end of each of the next 3 years from today. Find out the future value if rate of interest is 10% p.a. ?
Q.8. A 4 year annuity of Rs. 3,000 per year is deposited in a bank account that pays 9% interest compounded yearly. The annuity payments begin in year 12 from now. What is the F.V of the annuity?
Q.9. A sum of Rs. 1,080 is receivable at the end of one year from now and the expected of the interest which a person can earn on his investment is 8% p.a. find out its present value ?
Q.10. A service agency offers the following options for 3 year contract.
(i) pay only Rs. 2,500 now and no more payment during next 3 year, or
(ii) pay Rs. 900 each at the end of first year, second year and third year from now. A client having rate of interest at 10% pa. can choose an option on the basis of the present values Find out option is better ?
Q.11. A student is awarded a scholarship and two options are placed before him
(i) to received Rs. 1,100 now or
(ii) receive Rs. 100 p.m. at the end of each of next 12 months. Which option be chosen if rate of interest is 12% p.a.
Q.12. Find out the present value of an investment which is expected to give a return of Rs. 2,500 p.a. indefinitely and the rate of interest is 12% p.a ?
Q.13. A finance company make an offer to deposit a sum of 1,100 and then receive an return of Rs. 80 p.a. perpetually. Should this offer be accepted if the rate of interest is 8% Will the decision change if the rate of interest is 5%.
Ans. 1,000 or 1600.
Q.14. Assume that a deposit is to be made at year Zero into an account that will earn 8% compounded annually. It is desired to withdraw Rs. 5,000 three years from now and Rs. 7,000 six years from now. What is the size of the year zero deposit that will produce threes future payments.
Q.15. Assume that a Rs. 20,00,000 plant expansion is to be financed as follows. The firm makes at 5% down payment and borrows the remainder at 9% interest rate. The loan is to be repaid in 8 equal installment beginning 4 years now. What is the size of the required annual loan payments ?
Q.16. A potential investor is considering the purchase of a bound that has a following characteristics : the bond pa 8% per year on its Rs. 1,000 principal, or face value. The bond will mature in 20 years. At maturity, the bondholder will receive interest 4 years 20 plus the Rs. 1,000 face value. What is the maximum purchase price that should be paid for this bond if the investor a 10% rate of return ?
Q.17. A 10 year savings annuity of Rs. 2,000 per year is beginning at the end of current year. The payment of retirement annuity is to begin 16 years from now (the first payments is to be received at the end of year 16) and will continue to provide a 20 years payment annuity. If this plan is arranged through a savings bank that pays interest @ 7% per year on the deposited funds, what is the size of the yearly retirement annuity that will result ?
Ans. 3, 659.
Q.18. What is the present value of cash flows of Rs. 750 per year forever (a) at an interest rate of 8% and (b) at an interest rate of 10%?
Ans. (a) 9,375, and (b) Rs. 7,500.
Q.19. 38 Find out present value of the following :
(a) Rs. 1,500 receivables in 7 years at a discount rate of 15%;
(b) An annuity of Rs. 760 starting after 1 years for 6 years at an interest rate of 12%;
(c) An annuity of Rs. 5,500 starting in 7 years time lasting for 7 years at a discount rate of 10%;
(e) A perpetuity of Rs. 400 starting in year 3 at a discount rate of 18%.
Ans. (a) Rs. 564, (b) Rs. 3,125, (c) Rs. 15,100, (d) Rs. 4,837 and (e) Rs. 1,596.
Q.20. A company has issued debentures of Rs. 50 lacs to be repaid after 7 years. How much should the company invest in a sinking fund earning 12% in order to able to repay debentures?
Ans. Rs. 4,95,589.