Chapter 4 – Time Value of Money

CA NISHANT KUMAR 1
CA NISHANT KUMAR 2
CA NISHANT KUMAR 3
CA NISHANT KUMAR 4
CA NISHANT KUMAR 5
CA NISHANT KUMAR 6
CA NISHANT KUMAR 7
CA NISHANT KUMAR 8
CA NISHANT KUMAR 9
CA NISHANT KUMAR 10
CA NISHANT KUMAR 11
CA NISHANT KUMAR 12
CA NISHANT KUMAR 13
Questions on Simple Interest

CA NISHANT KUMAR 14
Question 1
Sania deposited ₹50,000 in a bank for two years with the interest rate of 5.5% p.a. What
will be the final value of investment?
(a) ₹55,800 (b) ₹5,500 (c) ₹55,500 (d) ₹5,800

CA NISHANT KUMAR 15
CA NISHANT KUMAR 16
Question 2
The sum required to earn a monthly interest of ₹1,200 at 18% p.a. SI is:
(a) ₹50,000 (b) ₹60,000 (c) ₹80,000 (d) None

CA NISHANT KUMAR 17
CA NISHANT KUMAR 18
Question 3
₹8,000 becomes ₹10,000 in 1 year 8 months at simple interest. The amount that will
become ₹6,875 in 2 years 7 months at the same rate of interest is:
(a) ₹4,850 (b) ₹5,000 (c) ₹4,955 (d) ₹5,275

CA NISHANT KUMAR 19
CA NISHANT KUMAR 20
Question 4
P = ₹8,500, A = ₹10,200, R = 12½% SI, t will be:
(a) 1 year 7 months (b) 2 years (c) 1½ year (d) None

CA NISHANT KUMAR 21
CA NISHANT KUMAR 22
Question 5
A sum of money gets doubled in 5 years at x% simple interest. If the interest was y%, the
sum of money would have become ten-fold in thirty years. What is y – x (in %)?
(a) 10 (b) 5 (c) 8 (d) None

CA NISHANT KUMAR 23
CA NISHANT KUMAR 24
Question 6
A person borrows ₹5,000 for 2 years at 4% p.a. simple interest. He immediately lends to
another person at 6¼% p.a. for 2 years. Find his gain in the transaction per year.
(a) ₹112.50 (b) ₹125 (c) ₹225 (d) ₹167.50

CA NISHANT KUMAR 25
CA NISHANT KUMAR 26
Question 7
If a simple interest on a sum of money at 6% p.a. for 7 years is equal to twice of simple
interest on another sum for 9 years at 5% p.a., the ratio will be:
(a) 2 : 15 (b) 7 : 15 (c) 15 : 7 (d) 1 : 7

CA NISHANT KUMAR 27
CA NISHANT KUMAR 28
Question 8
A sum of money amounts to ₹20,800 in 5 years and ₹22,720 in 7 years. Find the principal
and rate of interest.
(a) ₹5,000; 6% (b) ₹16,000; 6% (c) ₹80,000; 8% (d) ₹10,000; 10%

CA NISHANT KUMAR 29
CA NISHANT KUMAR 30
Question 9
Two equal sums were lent out at 7% and 5% simple interest respectively. The interest
earned on the two loans adds upto ₹960 for four years. Find the sum lent out.
(a) ₹4,000 (b) ₹3,000 (c) ₹5,000 (d) ₹6,000

CA NISHANT KUMAR 31
CA NISHANT KUMAR 32
Questions on Compound Interest

CA NISHANT KUMAR 33
Question 10
Mr. X borrowed ₹5,120 at 12½% p.a. C.I. At the end of 3 years, the money was repaid
along with the interest accrued. The amount of interest paid by him is:
(a) ₹2,100 (b) ₹2,170 (c) ₹2,000 (d) None

CA NISHANT KUMAR 34
CA NISHANT KUMAR 35
Question 11
₹100 will become after 20 years at 5% p.a. compound interest of:
(a) ₹250 (b) ₹205
(c) ₹165.33 (d) None of these

CA NISHANT KUMAR 36
CA NISHANT KUMAR 37
Question 12
If A = ₹1,000; n = 2 years; R = 6% p.a. compound interest payable half-yearly, then
Principal (P) is:
(a) ₹888.50 (b) ₹885 (c) ₹800 (d) None

CA NISHANT KUMAR 38
CA NISHANT KUMAR 39
Question 13
The compound interest on half-yearly rests on ₹10,000 the rate for the first and second
years being 6% and for the third year 9% p.a. is:
(a) ₹2,200 (b) ₹2,287 (c) ₹2,285 (d) ₹2,290.84

CA NISHANT KUMAR 40
CA NISHANT KUMAR 41
Question 14
On what sum will the compound interest at 5% p.a. for two years compounded annually
be ₹1,640?
(a) ₹2,200 (b) ₹1,487.53 (c) ₹16,000 (d) None

CA NISHANT KUMAR 42
CA NISHANT KUMAR 43
Question 15
What sum of money will amount to ₹11,035.50 in four years at compound interest for 1st,
2nd, 3rd, and 4th years being 4%, 3%, 2% and 1% respectively?
(a) ₹10,000 (b) ₹11,000 (c) ₹1,035 (d) ₹11,305

CA NISHANT KUMAR 44
CA NISHANT KUMAR 45
Question 16
What annual rate of interest compounded annually doubles an investment in 7 years?
1
Given that 2 = 1.104090 .
7

(a) 11.41% (b) 10% (c) 10.41% (d) None

CA NISHANT KUMAR 46
CA NISHANT KUMAR 47
Question 17
The population of a town increases every year by 2% of the population at the beginning
of that year. The number of years by which the total increase of population be 40% is:
(a) 7 years (b) 10 years (c) 17 years (approx.) (d) None

CA NISHANT KUMAR 48
CA NISHANT KUMAR 49
Question 18
The annual birth and death rates per 1,000 are 39.4 and 19.4 respectively. The number of
years in which the population will be doubled assuming there is no immigration or
emigration is:
(a) 35 years (b) 30 years (c) 25 years (d) None

CA NISHANT KUMAR 50
CA NISHANT KUMAR 51
Question 19
In how many years a sum of money trebles at 5% p.a. compound interest payable on half-
yearly basis?
(a) 18 years 7 months (b) 18 years 6 months
(c) 18 years 8 months (d) 22 years 3 months

CA NISHANT KUMAR 52
CA NISHANT KUMAR 53
Question 20
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

CA NISHANT KUMAR 54
CA NISHANT KUMAR 55
Questions Based on Depreciation

CA NISHANT KUMAR 56
Question 21
A Machine was purchased for ₹10,000. Its rate of depreciation is 10% in the first year
and 5% per annum afterwards. Find the depreciated value of Machine after 7 years of

purchase. Given : ( 0.95) = 0.7351
6

(a) ₹6,606 (b) ₹6,616 (c) ₹6,660 (d) ₹6,661

CA NISHANT KUMAR 57
CA NISHANT KUMAR 58
Question 22
A machine worth ₹4,90,740 is depreciated at 15% of its opening value each year. When
its value would reduce by 90%?
(a) 11 years 6 months (b) 11 years 7 months
(c) 11 years 8 months (d) 14 years 2 months

CA NISHANT KUMAR 59
CA NISHANT KUMAR 60
Questions Based on Difference Between Compound Interest
and Simple Interest

CA NISHANT KUMAR 61
Question 23
The difference between simple interest and compound interest on a sum of ₹6,00,000 for
two years is ₹6,000. What is the annual rate of interest?
(a) 8% (b) 10% (c) 6% (d) 12%

CA NISHANT KUMAR 62
CA NISHANT KUMAR 63
Questions Based on Effective Rate of Interest

CA NISHANT KUMAR 64
Question 24
Which is a better investment 3% per year compounded monthly or 3.2% per year simple
interest? Given that (1 + 0.0025)12 = 1.0304.
(a) Compound Interest (b) Simple Interest (c) Don’t Know (d) None

CA NISHANT KUMAR 65
CA NISHANT KUMAR 66
Questions Based on Future Value of Annuity

CA NISHANT KUMAR 67
Question 25
₹200 is invested at the end of each month in an account paying interest 6% per year
compounded monthly. What is the future value of this annuity after 10th payment? Given
that (1.005)10 = 1.0511.
(a) ₹2,047 (b) ₹2,046 (c) ₹2,044 (d) ₹2,045

CA NISHANT KUMAR 68
CA NISHANT KUMAR 69
Question 26
A person invests ₹500 at the end of each year with a bank which pays interest at 10% p.a.
C.I. annually. The amount standing to his credit one year after he has made his yearly
investment for the 12th time is:
(a) ₹11,761.36 (b) ₹10,000 (c) ₹12,000 (d) None

CA NISHANT KUMAR 70
CA NISHANT KUMAR 71
Question 27
How much money is to be invested every year so to accumulate ₹3,00,000 at the end of
10 years if interest is compounded annually at 10% [A(10, 0.1) = 15.9374]
(a) ₹18,823.65 (b) ₹18,833.64 (c) ₹18,223.60 (d) ₹16,823.65

CA NISHANT KUMAR 72
Question 27 – Alternatively
How much amount is required to be invested every year so as to accumulate ₹3,00,000
at the end of 10 years, if interest is compounded annually at 10%?
{Given (1.1)10 = 2.5937}
(a) ₹18,823.65 (b) ₹18,828.65 (c) ₹18,832.65 (d) ₹18,182.65

CA NISHANT KUMAR 73
Question 28
A machine 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

CA NISHANT KUMAR 74
CA NISHANT KUMAR 75
Question 29
Z invests ₹10,000 every year starting from today for the next 10 years. Suppose interest
rate is 8% p.a. compounded annually. Calculate future value of the annuity, given that
the value of (1 + 0.08)10 = 2.15892500.
(a) ₹1,56,454.875 (b) ₹1,56,494.875 (c) ₹1,56,554.875 (d) None

CA NISHANT KUMAR 76
CA NISHANT KUMAR 77
Question 30
Raja aged 40 wishes his wife Rani to have ₹40 lakhs at his death. If his expectation of
life is another 30 years and he starts making equal annual investments commencing now
at 3% compound interest p.a. how much should he invest annually?
(a) ₹84,448 (b) ₹84,450 (c) ₹84,449 (d) ₹84,080

CA NISHANT KUMAR 78
CA NISHANT KUMAR 79
Questions Based on Present Value

CA NISHANT KUMAR 80
Question 31
The present value of ₹10,000 due in 2 years at 5% p.a. compound interest when the
interest is paid on half-yearly basis is ₹________.
(a) ₹9,070 (b) ₹9,069 (c) ₹9,061 (d) None

CA NISHANT KUMAR 81
CA NISHANT KUMAR 82
Questions Based on Present Value of Annuity Regular

CA NISHANT KUMAR 83
Question 32
Appu retires at 60 years receiving a pension of ₹14,400 a year paid in half-yearly
installments for rest of his life after reckoning his life expectation to be 13 years and that
interest at 4% p.a. is payable half-yearly. What single sum is equivalent to his pension?
(a) ₹1,45,000 (b) ₹1,44,900 (c) ₹1,44,800 (d) ₹1,44,700

CA NISHANT KUMAR 84
CA NISHANT KUMAR 85
Question 33
A took a loan from B. The loan is to be repaid in annual installments of ₹2,000 each. The
first instalment is to be paid three years from today and the last one is to be paid 8 years
from today? What is the value of loan today, using a discount rate of eight percent?
(a) ₹9,246 (b) ₹7,927 (c) ₹8,567 (d) None

CA NISHANT KUMAR 86
CA NISHANT KUMAR 87
Question 34
A person bought a house paying ₹20,000 cash down and ₹4,000 at the end of each year
for 25 yrs. at 5% p.a. C.I. The cash down price is:
[Given (1.05)25 = 3.386355]
(a) ₹75,000 (b) ₹76,000 (c) ₹76,375.80 (d) None

CA NISHANT KUMAR 88
CA NISHANT KUMAR 89
Question 35
Arun purchased a vacuum cleaner by giving ₹1700 as cash down payment, which will be
followed by five EMIs of ₹480 each. The vacuum cleaner can also be bought by paying
₹3900 cash. What is the approx. rate of interest p.a. (at simple interest) under this
instalment plan?
(a) 18% (b) 19% (c) 22% (d) 20%

CA NISHANT KUMAR 90
CA NISHANT KUMAR 91
Question 36
ABC Ltd. wants to lease out an asset costing ₹3,60,000 for a five-year period. It has fixed
a rental of ₹1,05,000 per annum payable annually starting from the end of first year.
Suppose rate of interest is 14% per annum compounded annually on which money can
be invested by the company. Is this agreement favourable to the company?
(a) No (b) Yes (c) Don’t Know (d) None

CA NISHANT KUMAR 92
CA NISHANT KUMAR 93
Question 37
A machine with useful life of seven years costs ₹10,000 while another machine with
useful life of five years costs ₹8,000. The first machine saves labour expenses of ₹1,900
annually and the second one saves labour expenses of ₹2,200 annually. Determine the
preferred course of action. Assume cost of borrowing as 10% compounded per annum.
(a) First Machine (b) Second Machine (c) Don’t Know (d) None

CA NISHANT KUMAR 94
CA NISHANT KUMAR 95
Question 38
If the cost of capital be 12% per annum, then the Net Present Value (in nearest ₹) from
the given cash flow is given as:
Year 0 1 2 3
Operating Profit (in thousand ₹) (100) 60 40 50

(a) ₹34,048 (b) ₹34,185 (c) ₹51,048 (d) ₹21,048

CA NISHANT KUMAR 96
CA NISHANT KUMAR 97
Question 39
An investor intends purchasing a three-year ₹1,000 par value bond having nominal
interest rate of 10%. At what price the bond may be purchased now if it matures at par
and the investor requires a rate of return of 14%?
(a) ₹907.125 (b) ₹800.125 (c) ₹729.12 (d) None

CA NISHANT KUMAR 98
CA NISHANT KUMAR 99
Question 40
Suppose your mom decides to gift you ₹10,000 every year starting from today for the
next five years. You deposit this amount in a bank as and when you receive and get 10%
per annum interest rate compounded annually. What is the present value of this annuity?
(a) ₹91,000 (b) ₹79,489 (c) ₹41,698.70 (d) None

CA NISHANT KUMAR 100

CA NISHANT KUMAR 101
Question 41
Ramesh wants to retire and receive ₹3,000 a month. He wants to pass this monthly
payment to future generations after his death. He can earn an interest of 8% compounded
annually. How much will he need to set aside to achieve his perpetuity goal?
(a) ₹4,30,000 (b) ₹4,50,000 (c) ₹4,20,000 (d) None

CA NISHANT KUMAR 102

CA NISHANT KUMAR 103
Question 42
A stock pays annually an amount of ₹10 from 6th year onwards. What is the present value
of the perpetuity, if the rate of return is 20%?
(a) 20.1 (b) 19.1 (c) 21.1 (d) 22.1

CA NISHANT KUMAR 104

CA NISHANT KUMAR 105
Question 43
Assuming that the discount rate is 7% per annum, how much would you pay to receive
₹50, growing at 5%, annually, forever?
(a) ₹4,300 (b) ₹2,500 (c) ₹4,200 (d) None

CA NISHANT KUMAR 106

CA NISHANT KUMAR 107
Question 44
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

CA NISHANT KUMAR 108

CA NISHANT KUMAR 109
Question 45
Let the operating profit of a manufacturer for five years is given as:
Year 1 2 3 4 5 6
Operating Profit (in lakh ₹) 90 100 106.4 107.14 120.24 157.35

(a) 9% (b) 12% (c) 11% (d) 13%

CA NISHANT KUMAR 110

CA NISHANT KUMAR 111