Ans.: Cost of equity is 21.

5%

SOLVED PROBLEMS

Illustration 1: compound interest Der

period of 3 years at 10%
An investor invests a sum of Rs. 12,000 for a

annum.
end of the three years?
How much money would he get back at the
Solution:
FV PV (1+ r)
12,000 (1 +0.1)3
12,000 (1.1)3
= 12,000 x 1.331
FV Rs. 15,972
Illustration 2:
a scheme 10% p.a. compounded half yearly. Find oO
in
Swaraj has invested Rs. 1,00,000 of one
the end year.
what will the amount become at
Solution:
FV PV (1+r
1,00,000.
1,00,000 (1.05)2
FV Rs. 1,10,250
Illustration 3:
scheme 12% p.a. compounded quarterly. Hnc u
Sanjana has invested Rs. 25,000 in a

what will the amount become at the end of two years.

Solution:
FV PV(1+r)
0.12)2x 4

25,000

25,000 (1.03)
25,000x 1.26677
FV Rs.31,669.25
 Value ofMoney Vy"Y" 185
T m e

lustration 4:
11ussit of Rs. 10,000 is made to earn interest
depo.
12% p.a. Find out the futu
uture value of
this

depositi fthecompounding per

(a)Annually

Half-yearly
Quarterly
(c)
Monthly

e) Daily
Solution:
FV PV(1+r)
) FV 10,000 (1 +0.12)
10,000 (1.12)
FV Rs. 11,200
1x2
FV 10.000(1012*
b)
= 10,000 (1.06)2
10,000x 1.1236
FV Rs. 11,236
2'x4

FV =10,00(1,
= 10,000 (1.03)
10,000 x 1.1255
FV Rs. 11,255.08
0 . 1 2 1 x 12

FV 10,000(1+12
10,000 (1.01)12
= 10,000x 1.126825
FV Rs. 11,268.25
0.12)1* 365
10,000(1.
FV
365
10,000 (1.0003287)365
10,000 x 1.12747
FV Rs. 11,274.70
lustration 5: certificate of Deposit for
3 years at 8% interest per
in Bank
An investor invests Rs. 60,000
investment.
num. Calculate the maturity value of the
Solution:
FV PV (1+ r)"
where
PV Rs. 60,000
8%= 0.08
=3 years
FV 60,000 (1 +0.08)3
60,000 (1.08)3
= 60,000 x 1.259712
75,582.72
FV Rs. 75,583 (approx)
Illustration 6:
Aninvestor has invested Rs. 5,50,000 in a Bank FD for 4 years t85% p.a. How much wil b
received at maturity?
Solution:
FV PV (1+r
PV = Rs. 5,50,000
r8.5% = 0.085
n 4
FV 5,50,000(1 +0.085)
5,50,000 (1.085)4
5,50,000x 1.385858
FV = Rs. 7,62,222.28 (approx.)
The maturity value of the investment will be Rs. 7,62,222. (approx.)
Illustration 7:
 6.78%
1llustration 20:
(Nov. 17
A bank promises to give you Rs. 10,000 after 3 years at the rate of 10% interest. How much
should you deposit today?
Solution:
Future Value (FV) 10,000
Interest Rate () = 10%
Number of Years (N) 3 Years
Present Value (PV) ?
PV FV [1/(1 +i}"]
=
10,000 [1/(1 +0.10)3]
10,000 x 0.7513
Rs. 7,513
Tllustratio /AT 17)
this stock can be purchased.
Illustration 18: (Nov.17
if the interest rate is 10%.
Find the present value of Rs. 10,000 receivable 6 years hence,
Solution:
Future Value (FV) =
10,000
Interest Rate (1) =
10°%
Number of Years (N) = 6 Years
Present Value (PV) = ?
PV FV[1/(1 +i]
= 10,000[1/(1+0.10)6
=
10,000 x 0.5645
Rs. 5,645
llustration 26:
(Oct. 18)
Avinash has invested Rs. 3,00,000 in bank FD for 3 years at 8%. How much will he receive at
maturity?
Solution:
PV 3,00,000
R 8% (0.08)
N 3 Years
FV ?
FV PVx (1 +R 3
3,00,000x (1+0.08
FV Rs. 3,77,914
(Oct. 18)
 =11.8/o

Illustration 23: (March 18)

Manohar wants to send his brother to US for further studies after 6 years. He would require
Rs. 25,00,000 at that time (ater 6 years). How much should he invest today if the offered interest
rate is 14%.
Solution:
FV Rs. 25,00,000
14% or 0.14
N = 6 years

PV 1
FV+

=25,00,000 (1+0.14)
= Rs. 11,38,966