Chapter 4 – Time Value of

Money – Additional
Questions

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Question 1
A man gets a simple interest of ₹1,000 on a certain principal at the rate
of 5% p.a. in 4 years. What compound interest will the man get on twice
the same principal in 2 years at the same rate?
(a) ₹1,025 (b) ₹1,005 (c) ₹10,125 (d) ₹11,025

Solution
(a)

Question 2
What is the difference between the compound interests on ₹5,000 for 1
year at 4% p.a. compounded yearly and half yearly?
(a) 2 (b) 3 (c) 4 (d) None

Solution
(a)

Question 3
Under the Rural Housing Scheme, the Delhi Development Authority
(DDA) allotted a house to Kamal Raj for ₹1,26,100. This payment is to
be made in three equal annual installments. If the money is reckoned at
5% per annum compound interest, then how much is to be paid by
Kamal Raj in each installment?
(a) ₹45,205 (b) ₹46,305 (c) ₹47,405 (d) ₹48,505

Solution
(b)

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Question 4
Shashi had a certain amount of money. He invested 2/3rd of the total
money in scheme A for 6 years and rest of the money in scheme B for
2 years. Scheme A offers simple interest at a rate of 12% p.a. and
scheme B offers compound interest (compounded annually) at a rate of
10% p.a. If the total interest obtained from both the schemes is ₹2,750,
what was the total amount invested by him in scheme A and scheme B
together?
(a) ₹4,500 (b) ₹4,200 (c) ₹4,050 (d) ₹5,000

Solution
(d)

Question 5
One can purchase a flat from a house building society for ₹55,000 cash
or on the terms that he should pay ₹4,275 as cash down payment and
the rest in three equal installments. The society charges interest at the
rate of 16% p.a. compounded half yearly. If the flat is purchased under
instalment plan, find the value of each instalment.
(a) ₹18,756 (b) ₹19,292 (c) ₹19,683 (d) ₹20,285

Solution
(c)

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Question 6
On what sum will the amount at 10% p.a. for 4 years compounded
annually be ₹3,280?
(a) 2,240 (b) 4,240 (c) 4,500 (c) 2,245

Solution
(a)

Question 7
A money-lender borrows money at 4% per annum and pays the interest
at the end of the year. He lends it at 6% per annum compound interest
compounded half-yearly and receives the interest at the end of the year.
In this way, he gains ₹104.50 a year. The amount of money he borrows,
is:
(a) ₹4,500 (b) ₹5,000 (c) ₹5,500 (c) ₹6,000

Solution
(b)

Question 8
After 3 years, how much compound interest will be obtained on ₹7,800
at the interest rate of 5% per annum?
(a) ₹1,227.475 (b) ₹1,229.475 (c) ₹1,228.475 (d) None

Solution
(b)

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Question 9
A certain sum amount to ₹7350 in 2 years and to ₹8575 in 3 years. Find
the sum.
(a) ₹5225 (b) ₹5400 (c) ₹1225 (d) None

Solution
(b)

Question 10
What annual payment will discharge a debt of ₹1025 due in 2 years at
the rate of 5% compound interest?
(a) ₹550 (b) ₹551.25 (c) ₹560 (d) ₹560.75

Solution
(b)

Question 11
The present worth of ₹169 due in 2 years at 4% per annum compound
interest is:
(a) ₹150.50 (b) ₹154.75 (c) ₹156.25 (d) ₹158

Solution
(c)

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Question 12
A man borrows ₹4,000 at 15% compound rate of interest. At the end of
each year, he pays back ₹1,500. How much amount should be paid at
the end of the third year to clear all his dues?
(a) ₹874.75 (b) ₹824.50 (c) ₹924.25 (d) ₹974.25

Solution
(a)

Question 13
A machine costs ₹6,20,000 with an estimated life of 30 years. A sinking
fund is created to replace it by a new model at 50% higher cost after 30
years with a scrap value realization of ₹60,000. What amount should be
set aside every year if the sinking fund investments accumulate at 10%
compound interest p.a.?
(a) ₹5,500 (b) ₹5,290 (c) ₹5,300 (d) ₹5,200

Solution
(b)

Question 14
A sum becomes its double in 10 years. Find the annual rate of simple
interest.
(a) 8% (b) 5% (c) 10% (d) 20%

Solution
(c)

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Question 15
The rates of simple interest in two banks A and B are in the ratio 5 : 4.
A person wants to deposit his total savings in two banks in such a way
that he received equal half-yearly interest from both. He should deposit
the savings in banks A and B in the ratio:
(a) 2 : 5 (b) 4 : 5 (c) 5 : 2 (d) 5 : 4

Solution
(b)

Question 16
Mr. Duggal invested ₹20,000 with rate of interest @ 20 p.a. The interest
was compounded half-yearly for the first one year and in the next year
it was compounded yearly. What will be the total interest earned at the
end of 2 years?
(a) ₹8,040 (b) ₹8,800 (c) ₹9,040 (d) ₹9,800

Solution
(c)

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Question 17
A man invests ₹4,000 for 3 years at compound interest. After one year,
the money amounts to ₹4,320. What will be the amount (to the nearest
rupee) due at the end of 3 years?
(a) ₹4,939 (b) ₹5,039 (c) ₹5,789 (d) ₹6,129

Solution
(b)

Question 18
Samiksha purchased a house valued at ₹3,00,000. She paid ₹2,00,000
at the time of purchase and agreed to pay the balance with interest at
12% per annum compounded half yearly in 20 equal half-yearly
instalments. If the first instalment is paid after six months from the date
of purchase, then the amount of each instalment is_______ [Given log
10.6 = 1.0253 and log 31.19 = 1.494]
(a) ₹8,718.45 (b) ₹8,769.21 (c) ₹7,893.13 (d) None

Solution
(a)

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Question 19
A special purpose Equipment costs ₹5,20,000 with an estimated life of
25 years. A sinking fund is created to replace it by a new model at 25%
higher cost after 25 years with a scrap value realization of ₹25,000.
What amount should be set aside every year if the sinking fund
investments accumulate at 3.5% compound interest p.a.?
(a) ₹16,000 (b) ₹16,500 (c) ₹16,050 (d) ₹16,005

Solution
(c)

Question 20
A special purpose Equipment costs ₹5,20,000 with an estimated life of
25 years. A sinking fund is created to replace it by a new model at 25%
higher cost after 25 years with a scrap value realization of ₹25,000.
What amount should be set aside every year if the sinking fund
investments accumulate at 3.5% compound interest p.a.?
(a) ₹16,000 (b) ₹16,500 (c) ₹16,050 (d) ₹16,005

Solution
(c)

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Question 21
Shoba borrows ₹50,00,000 to buy a house. If he pays equal instalments
for 20 years and 10% interest on outstanding balance, what will be the
equal annual instalment? [Given: P(20,0.10) = 8.51356]
(a) ₹6,87,298.4 (b) ₹6,85,298.4 (c) ₹5,85,298.4 (d) ₹5,87,298.4
(MTP November, 2019)
(d)

Question 22 – Ambiguous
An overdraft of ₹50,000 to be paid back in equal annual instalments
over a period of 20 years. Find the value of instalment, if interest is
compounded annually at 14% per annum. [Given (1.14)20 = 13.74349]
(a) ₹550.50 (b) ₹549.30 (c) ₹559.50 (d) ₹560.50
(MTP November, 2019)
(b)

Question 23 – Dangerously Ambiguous

At six months’ intervals A deposited ₹1,000 in a savings account which
credits interest at 10% p.a., compounded semi-annually. The first
deposit was made when A’s son was 6 months old and last deposit was
made when his son was 8 years old. The money remained in the account
and was presented to the son on his 10th birthday. How much did he
receive? ((1.06)16 = 2.1829)
(a) ₹25,740 (b) ₹23,740 (c) ₹25,860 (d) ₹25,760
(MTP November, 2019)
(b)

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Question 24
Nominal rate of interest is 9.9% p.a. If the interest is compounded
monthly, what will be the effective rate of interest? Given:
12
 4033 
  = 1.1036
 4000 
(a) 10.36% (b) 9.36% (c) 11.36% (d) 9.9%
(MTP May, 2018)
Solution
(a)

Question 25
The value of a machine depreciates at 12% annually. If the present value
of ₹68,150 then its value 3 years ago was:
(a) ₹1,10,000 (b) ₹1,00,004 (c) ₹92,000 (d) ₹97,000
(MTP November, 2018)
Solution
(b)

Question 26
The compound interest on a certain sum is ₹209; simple interest is ₹200
for 2 years. What is the rate per cent for 2 years?
(a) 9% (b) 18% (c) 4.5% (d) 10%
(MTP November, 2018)
Solution
(a)

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Question 27
If the difference between the interests received from two different banks
on ₹5,000 for 2 years is ₹50 then the difference between the rates is:
(a) 0.25% (b) 0.40% (c) 0.50% (d) 0.75%
(MTP November, 2018)
Solution
(c)

Question 28
A lent ₹6,000 to B for 2 years and ₹1,500 to C for 4 years and received
total interest of ₹900 from both. The rate of interest, when simple
interest method is used is:
(a) 5% (b) 6% (c) 7.5% (d) 9%
(MTP November, 2018)
Solution
(a)

Question 29
If the effective rate of interest is 12% per annum and the interest is
compounded quarterly, the nominal rate of interest per annum:
(a) 11.78% (b) 11.21% (c) 11.89% (d) 11.49%
(MTP May, 2019 – Series II)
Solution
(d)

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Question 30
A man borrows ₹4,000 from a bank at 10% compound interest. At the
end of every year ₹1,500 as part of repayment of loan and interest. How
much is still owed to the bank after three such instalments [Given: (1.1)3
= 1.331]
(a) ₹359 (b) ₹820 (c) ₹724 (d) ₹720
(MTP November, 2020)
(a)

Question 31
The simple interest of P% for P years will be ₹P on a sum of:
P 100  P   100 
(a) ₹ (b) ₹ (c) ₹  + 1 (d) ₹  − 1
100 P  100   P 
(MTP November, 2018)
(b)

Question 32
A trust fund has invested ₹30,000 in two different types of bonds which
pays 5% and 7% interest respectively. Determine how much amount is
invested in each type of bond if trust obtains an annual total interest of
₹1,600.
(a) ₹5,000 (b) ₹6,000 (c) ₹7,000 (d) ₹8,000
(MTP November, 2019)
(a)

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Question 33
A certain sum amounted to ₹575 at 5% in a time in which ₹750
amounted to ₹840 at 4%. If the rate of interest is simple, find the sum:
(a) ₹525 (b) ₹550 (c) ₹515 (d) ₹500

Solution
(d)

Question 34
Find the amount of compound interest, if an amount of ₹50,000 is
deposited in a bank for one year at the rate of 8% per annum
compounded semi-annually.
(a) ₹3,080 (b) ₹4,080 (c) ₹5,456 (d) ₹7,856

Solution
(b)

Question 35
The population of a town increases by 2% of the population at the
beginning of the year. The number of years by which the total increase
in population would be 40% is:
(a) 7 years (b) 10 years (c) 17 years (d) 19 years

Solution
(c)

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Question 36
Find the future value of annuity of ₹1,000 made annually for 7 years at
interest rate of 14% compounded annually. [Given: 1.147 = 2.5023]
(a) 10,730.7 (b) 5,365.35 (c) 8,756 (d) 9,892.34

Solution
(a)

Question 37
Two equal amounts of money are deposited in two banks each at 15%
p.a. for 3.5 years in one bank and for 5 years in the other. The difference
between the interest amounts from the banks is ₹144. Find the sum.
(a) ₹620 (b) ₹640 (c) ₹820 (d) ₹840

Solution
(b)

Question 38
The simple interest on a sum at 4% p.a. for 2 years is ₹80. Find the CI
on the same sum for the same period.
(a) ₹81.60 (b) ₹80.80 (c) ₹83.20 (d) ₹82.30

Solution
(a)

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Question 39
Which is a better investment 9% p.a. compounded quarterly or 9.1%
p.a. simple interest?
(a) 9% p.a. compounded quarterly (b) 9.1% p.a. simple interest
(c) Both are Same (d) Cannot be said

Solution
(a)

Question 40
The effective rate of interest corresponding to a nominal rate of 7% p.a.
compounded quarterly is:
(a) 7.5% (b) 7.6% (c) 7.7% (d) 7.18%

Solution
(d)

Question 41
Assuming that the discount rate is 7% p.a. how much would pay to
receive ₹200 growing at 5% annually forever?
(a) ₹2,500 (b) ₹5,000 (c) ₹7,500 (d) ₹10,000

Solution
(d)

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Question 42
A man invested one-third of his capital at 7% p.a., one fourth at 8% p.a.,
and the remainder at 10% p.a. If the annual income is ₹561, the capital
is:
(a) ₹4,400 (b) ₹5,500 (c) ₹6,600 (d) ₹5,800

Solution
(c)

Question 43
A sum of money is lent at C.I. rate 20% p.a. for 2 years. It would fetch
₹482 more if the interest is compounded half yearly. The sum is:
(a) ₹19,800 (b) ₹19,900 (c) ₹20,000 (d) ₹20,100

Solution
(c)

Question 44
₹800 is invested at the end of each month in an account paying interest
5% per year compounded monthly. What is the future value of this
annually after 10th payment?
(a) ₹4,444 (b) ₹8,756 (c) ₹3,491 (d) ₹8,151

Solution
(d)

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Question 45
What i denote the actual rate of interest in decimal, and n denote the
number of conversion periods, the formula for computing the effective
rate of interest E is given by.
(a) (1 + i ) (b) (1 + i ) − 1 (c) 1 − (1 + i ) (d) (1 + i )
n n n −n

Solution
(b)

Question 46
The present value of an Annuity immediate is the same as:
(a) Annuity regular for (n – 1) year plus the initial receipt in the
beginning of the period
(b) Annuity regular for (n – 1) years
(c) Annuity regular for (n + 1) years
(d) Annuity regular for (n + 1) years plus the initial receipt in the
beginning of the period

Solution
(a)

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Question 47
If the desired future value after 5 years with 18% interest rate is
₹1,50,000, then the present value (in ₹) is? (Given that (1.18)5 = 2.2877)
(a) ₹63,712 (b) ₹65,568 (c) ₹53,712 (d) ₹41,712

Solution
(b)

Question 48
The effective rate of return for 24% per annum convertible monthly is
given as:
(a) 24% (b) 26.82% (c) 18% (d) 24.24%

Solution
(b)

Question 49
1
What is the compound interest (in ₹) on a sum of ₹12,600 for 1 years
2
at 20% per annum if the interest is compounded half yearly? (Nearest
to a rupee).
(a) 4,271 (b) 4,171 (c) 4,711 (d) 4,117

Solution
(b)

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Question 50
If the discount rate is 14% per annum, then how much a company has
to pay to receive ₹280 growing at 9% annually forever?
(a) ₹5,600 (b) ₹2,800 (c) ₹1,400 (d) ₹4,200

Solution
(a)
Question 51
The nominal rate of growth is 17% and inflation is 9% for the five years.
Let P be the Gross Domestic Product (GDP) amount at the present year,
then the projected real GDP after 6 years is:
(a) 1.587P (b) 1.921P (c) 1.403P (d) 2.51P

Solution
(a)

Question 52
A sum of ₹7,500 amounts to ₹9,075 at 10% p.a., interest being
compounded yearly in a certain time. The simple interest (in ₹) on the
same sum for the same time and the same rate is:
(a) 1,000 (b) 1,250 (c) 1,800 (d) 1,500

Solution
(d)

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Question 53
A loan of ₹1,02,000 is to be paid back in two equal annual instalments.
If the rate of interest is 4% p.a., compounded annually, then the total
interest charged (in ₹) under this instalment plan is:
(a) 6,160 (b) 8,120 (c) 5,980 (d) 7,560

Solution
(a)

Question 54
If a person bought a house by paying ₹45,00,000 down payment and
₹80,000 at the end of each year till the perpetuity. Assuming the rate of
interest as 16% the present value of house (in ₹) is given as:
(a) 47,00,000 (b) 45,00,000 (c) 57,80,000 (d) 50,00,000

Solution
(d)

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Question 55
Let the operating profit of a manufacturer for five years is given as:
Years 1 2 3 4 5 6
Operating Profit (in lakh ₹) 90 100 106.4 107.14 120.24 157.34
The Compound Annual Growth Rate (CAGR) of Operating Profit for
year 6 with respect to year 2 is:
(a) 9% (b) 12% (c) 11% (d) 13%

Solution
(b)

Question 56
If the cost of capital be 12% per annum, then the net present value (in
nearest ₹) from the given cash flow is given as:
Years 0 1 2 3
Operating Profit (in thousand ₹) (100) 60 40 50

(a) ₹31,048 (b) ₹34,185 (c) ₹51,048 (d) ₹24,187

Solution
(d)

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Question 57
A certain sum amounts to ₹15,748 in 3 years at simple interest at r %
p.a. The same sum amounts to ₹16,510 at ( r + 2 ) % p.a. simple interest
in the same time. What is the value of r?
(a) 10% (b) 8% (c) 12% (d) 6%

Solution
(d)

Question 58
What is the difference (in ₹) between the simple interest and the
2
compound interest on a sum of ₹8,000 for 2 years at the rate of 10%
5
p.a., when the interest is compounded yearly?
(a) 136.12 (b) 129.50 (c) 151.75 (d) 147.20

Solution
(a)

Question 59
The future value of annuity of ₹2,000 for 5 years at 5% compounded
annually is given (in nearest ₹) as:
(a) 51,051 (b) 21,021 (c) 15,624 (d) 61,254

Solution
(c)

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Question 60
A sum of ₹x amounts to ₹27,900 in 3 years and to ₹41,850 in 6 years at
a certain rate percent per annum, when the interest is compounded
yearly. The value of x is:
(a) 16,080 (b) 18,600 (c) 18,060 (d) 16,800

Solution
(b)

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