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Time Value of Money
QUESTION FOR PRACTICE

Q.21. What is the present worth of operating expenditure of Rs. 1,00,000 per year which are assumed to be incurred continuously throughout in 8 year period the effective annual rate of interest is 12%

Ans.  Rs,. 4,96,800.

Q.22. A firm purchase a machinery for Rs. 8,00,000 by marking a down payment of Rs. 1,50,000 and remainder in equal instalments of Rs. 1, 50,000 for six years. What is the rate of interest to the firm?

Ans. 10%

Q.23. Mr. X borrows Rs. 1,00,000 at 8% compounded annually Equal annual payments are to be made for 6 years However, at the time of the fourth payment, the individual elects to pay off the loan. How much should be paid?

Ans. Rs. 60,207.

Q.24. Ten year from now Mr. X will start receiving a pension of Rs. 3,000 a year. The payment will continue for sixteen years. How much is the pension worth now, if his interest rate is 10%?

Ans. Rs. 9,952.

Q.25. Novelty Industries is establishing a sinking fund to redeem Rs. 55,00,000 bond issue which matures in 15 years. How much do they have to put into the fund at the end of year to accumulate Rs. 50,00,000, assuming the funds are compounded at 7% annually?

Ans. Rs. 1,98,973.

Q.26. XYZ Ltd. is creating a sinking fund to redeem its preference share capital of Rs. 5,00,000 issued of 1-1-2006 and maturing on 31-12-2017. The annual payments will start on 1-1-2006. The company wants to invest equal amount every year, which will earn 12% p.a. How much is the amount of sinking fund annuity ?

Ans. Rs. 18,500 p.a.

Q.27. In setting up a educational fund, a person agrees to make five annual payment of Rs. 5,000 each into a “college fund programme.” The first payment is to be made 12 years from now and the “college fund programme.” Wishes that upon-making the last it payment, the amount available should have grown to Rs. 30,000. What should be the minimum rate of return on this fund ?

Ans. 6%

Q.28. Rs. 1,000 deposited into an interest bearing account that pays 10% interest compounded yearly. The investor’s goal is Rs. 1,500. How many years must the principal earn compound interest before the desired amount is realized ?

Ans N is 5 years.

Q.29. A loan of Rs. 50,000 is to be repaid in equal annual installments of Rs. 14,000. The loan carries a 6% interest rate. How many payments are required to repay this loan ?

Ans. 4

Q.30. A machine costs Rs. 98,000 and its effective life is estimated at 12 years. If the scrap value is Rs. 3,000, what should be retained out of profit at the end of each year to accumulate at compound interest rate at 5% p.a. so that a new machine can be purchased after 12 years ?

Ans. 5968

Q.31. Rs. 1,00,000 borrowed today is to be repaid in five equal installments payable at the end of each of next 5 years in such a way that the interest at 10% p.a. for the intervening period is also repaid. Ascertain the annuity amount ?

Ans. Rs 26,378

Q.32. A Company offers to refund an amount of Rs. 44,650 at the end of 5 years for a deposit of Rs. 6,000 made annually. Find out the implicit rate of interest offered by the company?

Ans. 7,442. 20%

Q.33. Find the rate of interest if the amount owed after 6 (n) months is Rs.1,050 (A), borrowed amount being Rs.1,000 (P0).
 
Ans. 10%

Q.34. Determine the compound interest for an investment of rs.7,500 at 6% compounded half – yearly. Given that
(1 + i)n for I = 0.03 and n = 12 is 1.42576. 

Ans. 3,193.20

Q.35. Rs.2,000 is invested at annual rate of interest of 10%. What is the amount after 2 years if the compounding is done:
(a) Annually?
(b) Semi annually?
(c) Monthly?
(d) Daily?

Ans. (a) 2420,
(b) 2431,
(c) 2440,
(d) 2442,

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