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Unit - 2 Illustrations

The document contains 20 word problems related to time value of money concepts such as compound interest, present value, future value, annuities, and growth rates. The problems involve calculating future values and compound interest for lump sums and annuities deposited in bank accounts or other financial instruments over various time periods ranging from 1 to 20 years with interest rates ranging from 5% to 15%. They also include calculations related to present value, equivalent annual payments, and dividend growth rates.

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Rakesh Sri
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159 views2 pages

Unit - 2 Illustrations

The document contains 20 word problems related to time value of money concepts such as compound interest, present value, future value, annuities, and growth rates. The problems involve calculating future values and compound interest for lump sums and annuities deposited in bank accounts or other financial instruments over various time periods ranging from 1 to 20 years with interest rates ranging from 5% to 15%. They also include calculations related to present value, equivalent annual payments, and dividend growth rates.

Uploaded by

Rakesh Sri
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Unit – 2

Time value of Money

1. Suppose you invest Rs. 1000 in the Savings account on a bank at 5% interest rate. How much
shall it grow at the end of three years?

2. Suppose if you deposit Rs. 10,000 today in a finance company at 6% compound interest for a
period of 5 years, what is the compound value at the end of 5th year?

3. If you deposited Rs. 55,650 in a bank, at 15% rate of interest on a 10 year time deposit, how
much would the deposit grow at the end of 10 years?

4. A person has deposited Rs. 28,000 with a bank that advertises it pays 6% interest half-yearly.
Calculate the amount after 3 years.

5. Mr. M deposits Rs. 20,000 for 2 years at 10%. Calculate the maturity value of the deposit if the
interest is compounded half-yearly.

6. Mr.R deposits Rs. 5,000 at the end of each year for 4 years at 6% rate of interest. How much
would this annuity accumulate at the end of the fourth year?

7. Mr.R deposits Rs. 5,000 at the beginning of each year for 4 years at 6% rate of interest. How
much would this annuity accumulate after four years?

8. An employee of AIMS deposits at the end of each year Rs. 30,000 in his PPF account for 20
years. What will be the accumulated amount in his PPF account at the end of 20 years at 9%
interest rate?

9. Mr. A deposits Rs. 560 at the beginning of each year for 10 years in his SB account and the
deposit earns a compound interest of 5%. Calculate CVF at the end of 10 years.

10. Calculate the compound value of the following payments at the beginning of 3 years Rs.1,000,
Rs.2,000, Rs.3,000 respectively at 12% rate of interest.

11. Mr. X deposited at the end of each year Rs. 500, Rs. 900, Rs. 1,400, Rs. 1,900, and Rs. 2,400 in
the savings bank account for 5 years 1 to 5 years respectively. Calculate his future value of
series of cash deposits if the bank pays 5 % rate of interest.

12. Mr. G deposits each year at the beginning Rs. 750, Rs.1,000, Rs. 1,250, Rs. 1,500 and Rs. 1,750
in your savings bank account 1 to 5 years respectively. What is your deposits compound value at
the end of 5 years? Interest rate is 6 %.

13. If you deposit Rs. 50,000 today in a bank at 8% interest rate, in how many years (roughly) will
this amount get doubled? Calculate using rule 72 and 69.

14. M deposited Rs. 5,000 in a bank, which pays 8% quarterly compound interest. What is her
effective rate of interest?
15. Find the present value of Rs.1,00,000 receivable after 10 years at 8%, 10%, at 12% is the
discount rate.

16. Find the PV of an income stream which provides Rs.500, Rs.1,000, Rs.1,500, Rs.2,000 and
Rs.2,500 at the end of 1 to 5 years respectively if the interest rate is 12%.

17. Mr. P wishes to determine the PV of the annuity consisting of cash flow Rs. 20,000 per year
(beginning) for 5 years. The rate of interest he earns from his investment is 12%.

18. A financial manager of a company wants to pay a debt of Rs.2,00,000 at the end of 5 years. He
requests to find out the annual payment required, if his savings earns an interest rate of 10% per
annum.

19. A house owner has rented out his house (partition) for 3 years at a rent of Rs. 4,000 with
stipulation that rent will increase by 5 % every year. If the owner required rate of interest is 8%,
what is the PV expected (annuity) rent?

20. Mr. A wishes to determine the growth rate on the following stream of dividends, which he has received
for a period of 6 years from his company.
Year 2001 2002 2003 2004 2005 2006
Dividend Per Share (RS.) 1.90 1.10 1.40 1.30 1.80 2.10

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