B.Com.(Hons.

) IVth Semester
Business Mathematics, Section-B and D Asha Rani

Questions for Mathematics of Finance

Ques:1. (i) A certain sum of money is invested at 4% compounded annually. The
interest for second year is ₹ 25. Find the interest for 3rd year.
(ii) A sum of money is put at compound interest for two years at 20% p.a. It would
fetch ₹482 more, if the interest were payable half yearly than if it were payable yearly.
Find the sum.
Ques:2. A sum of money is deposited in a bank which compound interest
semiannually. The amount at the end of 4 years is ₹6333.85 and the amount became
₹8023.53 at the end of 8 years. Find the money deposited and the interest rate.
Ques:3. If a person deposit ₹2000 in a saving account that earns interest at the rate of
6% p.a. compounded continuously, what is the value of the account at the end of 3
years.
Ques:4. A person deposited ₹4000 in a bank at 6% compounded continuously. After 3
years, the rate of interest was increased to 7% and after 5 more years, the rate was
further increased to 8 %. The money was withdrawn at the end of 10 years. Find the
amount.
Ques:5. A man made a deposit of ₹2500 in a saving account. The deposit was left to
accumulate at 6% compounded quarterly for the first 5 years and at 8% compounded
semiannually for the next 8 years.
Ques:6. Distinguish between the nominal and effective rate of interest. Also establish
the relationship between nominal and effective rate of interest when compounded n
times a year and when compounded continuously.
Ques:7. Find the effective rate equivalent to the nominal rate 6% converted (i)
monthly, (ii) continuously.
Ques:8. Find, for each of the following, the amount to which ₹100 will accumulate:
(i) At the rate of interest 12% p.a. compounded quarterly for 10 years.
(ii) At the force of interest 3% p.a. for 3.5 years.
(iii) At the effective rates of interest 3% p.a. for 10 years, 4% p.a. for 4 years and 5%
p.a. for 2 years.
(iv) At the rate of interest corresponding to 3% p.a. effective rate of discount for 8
years.
(v) What constant force of interest would produce the same amount after 16 years
as the rate in (iii) above.
Ques:9. Mr. Y has two investment options- either at 10% p.a. compounded semi-
annually or 9.5% p.a. compounded continuously. Which option is preferable and
why?
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B.Com.(Hons.) IVth Semester
Business Mathematics, Section-B and D Asha Rani

Ques:10. Mr. X left ₹50000 to be divided between his two daughters A and B. A’s
share was to amount to a certain sum of money at the end of 5 years and B’s share
was to amount to an equal amount at the end of 7 years. If the rate of interest is 6 %
compounded annually, find the amount.
Ques:11. A debt of ₹5000 due 5 years from now and ₹5000 due 10 years from now
is to be repaid by a payment of ₹2000 in 2 years, a payment of ₹4000 in 4 years and
final payment at the end of 6 years. If the interest rate in 7% compounded annually,
how much is final payment?
Ques:12. A person borrows ₹ 12,000. He pays ₹4000 at the end of 6 months and
₹5000 at the end of one year. What final payment should be made at the end of 2
years to settle the debt if the rate of interest is 12 % compounded semiannually.
Ques:13. A debt of ₹3000 which is due 6 years from now, is instead to be paid off
by 3 payments ₹500 now, ₹1500 in 3 years and a final payment of ₹475 at the end
of n years. If the rate of interest is 6 % p.a. effective, Find the value of n.
Ques:14. Mr. X took a loan of ₹ 50,000, payable with the interest at 10% p.a.
compounded semiannually. If he pays ₹10,000 each at the end of first year and
second year, find the balance payable at the end of third year if the rate of interest
remains same.
Ques:15. The present value of ₹1000 due in 2 years at a certain nominal rate of
discount, convertible semiannually, is ₹900. Find the rate of discount.
Ques:16. A computer whose cost is ₹10,00,000 will depreciate to a scrap value of
₹1,00,000 in 5 years. What is the book value of computer at the end of 4th year?
(i) If the reducing balance method of depreciation is used.
(ii) If the straight-line method of depreciation is used.
Ques:17. An asset costing ₹4500 will depreciate to a scrap value of ₹500 in 10
years. Find the rate of depreciate.
Ques:18. A machine costing ₹75000 is depreciated at the rate of 10% p.a. for the
first 5 years and then at 12% p.a. for the next 3 year, both on diminishing balance
basis. Find the book value at the end of 8 th year. Using this, also find average rate
of depreciation.

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B.Com.(Hons.) IVth Semester
Business Mathematics, Section-B and D Asha Rani

Questions for Annuity Concept

Ques:1. At six-month interval, A deposited ₹2000 in a saving account which credit
interest at 10% p.a. compounded semi-annually. The first deposit was made when A’
s son was six-month-old and the 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 10 th birthday.
How much did he receive?
Ques:2. An annuity of ₹500 p.a. is flowing continuously for 10 years. Find its future
value if the rate of interest is 10% compounded continuously.
Ques:3. Mr. X deposits in his son’s account ₹1000 times his son age at the end of each
birthday. Find the balance accumulated at the 10th birthday, if the rate of interest is 10%
p.a. compounded annually.
Ques:4. A man requires ₹ 2,00,000 to purchase a house after 5 years. He has an
opportunity to invest the fund in an account which can earn 6% p.a. compounded
quarterly. Find how much be deposited at the end of each quarter so as to have the
required amount at the end of 5 years.
Ques:5. Mr. X purchases a house for ₹ 2,00,000. He agrees to pay for the house in 5
equal installments at the end of each year. If the money is worth 5% p.a. effective, what
would be size of each investment? In case X makes a down payment of ₹50, 000 what
would be the size of each installment?
Ques:6. What should be the monthly sales volume of a company if it desires to earn
12% annual returns convertible monthly on its investment of ₹ 2,00,000? Monthly costs
are ₹3,000. The investment will have eight-year life with no scrap value?
Ques:7. Mr. X sells his old car for ₹ 100,000 to buy a new one costing ₹ 2,58,000. He
pays ₹ x cash and balance by payment of ₹7000 at the end of each mount for 18 months.
If the rate of interest is 9% compounded monthly, find x.
Ques:8. Find the capital value of a uniform income stream of ₹ R per year for m years,
reckoning interest continuously at 100r% per year. What will be the result if income is
forever?
Ques:9. According to an investment proposal, an initial investment of ₹ 1,00,000 is
expected to yield a uniform income stream of ₹ 10,000 p.a. if the money is worth 8%
p.a. compounded continuously, what is the expected payback period, i.e., after what
time, the initial investment will be recovered?
Ques:10. If the present value and amount of an ordinary annuity of ₹1 p.a. for n years
are ₹8.1109 and ₹12.0061 respectively, Find the rate of interest and the value of n
without consulting the compound interest table.

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B.Com.(Hons.) IVth Semester
Business Mathematics, Section-B and D Asha Rani

Ques:11. Mr. X took a loan of ₹80,000 payable in 10 semiannual installments, rate of

interest being 8% p.a. compounded semiannually, find:
1) The amount of each installment;
2) Loan outstanding after 4th payment;
3) Interest component of 5th payment; and
4) Loan repaid after four payments.

Ques:12. Mr. M borrowed ₹10,00,000 from a bank to purchase a house and decided to
repay by monthly equal installment in 10 years. The bank charges interest at 9%
compounded monthly. The bank calculated his EMI as ₹12,668. Find the principal and
the interest paid in Ist and IInd year.
Ques:13. Machine A costs ₹ 10,000 and has a useful life of 8 years. Machine B costs
₹8000 and has a useful life of 6 years. Suppose machine a generates an annual labour
saving of ₹ 2000 which machine B generate an annual saving of ₹1800. Assuming the
time value of money is 10% p.a., find which machine is preferable?
Ques:14. Find the purchase of a ₹ 1000 bond, redeemable at the end of 10 years at
₹1100 and paying annual dividends at 4% if the yield rate is to be 5% p.a. effective.
Ques:15. A ₹1000 bond paying annual dividends at the 8.5% will be redeemed at par
at the end of 10 years. Find the purchase price of this bond if the investor wishes a yield
rate of 8%.
Ques:16. Mr. X wants ₹ 5,00,000 at the end of 7 years. If the rate of interest is 8%,
what amount shall be deposited at the beginning of each quarter so as to get the above
amount?
Ques: 17. Mr. X purchased an asset for ₹ 1,00,000 on installment basis. Each
installment is to repaid at the beginning of each quarter. Find the size of each
installment if the money is to be repaid in 3 years and the rate of interest is 6%
compounded quarterly.
Ques: 18. X buys a piece of land for which he agrees to make 10 annual payments of
₹20,000 each, the first being made at the end of 3 years. Find the equivalent cash price
of this property if the money is worth 5% effective.
Ques: 19. A house sells for ₹ 50,000 down and 10 semiannual payments of ₹ 5000
each, the first due 3 years hence. Find the cash price of the house if the money is worth
6% compounded semiannually.
Ques: 20. How much is needed to endure a series of lectures costing ₹2500 at the
beginning of each quarter of each year indefinitely, if the money is worth 3%
compounded annually?

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B.Com.(Hons.) IVth Semester
Business Mathematics, Section-B and D Asha Rani

Ques: 21. Suppose a machine costing ₹70, 000 is to be replaced at the end of 5 years,
at what time it will have a salvage value of ₹10,000. In order to provide money at that
time for a new machine costing the same amount, sinking fund is set up. The amount
in the fund at that time is to be the difference between the replacement costs and salvage
value. If equal payments are placed in the fund at the end of each quarter and the fund
earns 8% compounded quarterly, what each payment be?
Ques: 22. A machine costing ₹52,000 and its effective life is estimated to be 12 years.
A sinking fund is created for replacing the machine by a new model at the end of its
life time, when its scrap value is realized a sum of ₹5000 only. The price of a new
model is estimated to be 25% higher than the price of a present one. Find what amount
should be set aside at the end of each year, out of profits, for the sinking fund, if it
accumulates at 10% effective.
Ques: 23. An income stream decreases continuously over time for x years, the income
rate at t years from now being ₹ae-bt per year. What is its present value if interest be
reckoned at 100r% compounded continuously? Show that this equals the capital value
of a uniform income stream of ₹ a per year for x years if the rate of interest is raised to
100(r + b) % per year.

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