Chap.5 Time Value of Money 5.

Time Value of Money

Simple Interest Compound Interest-Basic Compound Interest-Advance Effective Rate

9. S.I on Rs. 3500 for 3 years at 12% per 15. If P = Rs. 1000, R = 5% p.a., n = 4; 3. Find the difference between the S.I. and 1. The effective rate of interest
annum is What is Amount and C.I. is C.I. on Rs.8000 for 3 years at 5% p.a. corresponding to a nominal rate
(a)Rs. 1200 (b) 1260 (a)Rs. 1215.50, Rs. 215.50 (a) Rs.65 (b)Rs.62 3% p.a. payable half yearly is
(c) 2260 (d)none of these (b)Rs. 1125, Rs. 125 (a) 3.2%
(c) Rs.61 (d) None
(c)Rs. 2115, Rs. 115 (b) 3.25% p.a.
10. A certain sum of money trebles itself 4. The difference between C.I. and S.I on a (c) 3.0225% p.a.
in 10 years at a certain rate of S.I. p.a. 16. Rs. 100 will become after 20 years at certain sum of money invested for 3 (d) None of these
then the rate of interest is 5% p.a. compound interest amount years at 6% p.a is Rs. 110.16. The sum is?
(a) 20% (b) 10% (c) 5% (d) None (a)Rs. 250 (b)Rs. 205 (a)Rs. 3000 (b)Rs. 3700 2. The effective rate of interest
(c)Rs. 265.50 (d) None (c)Rs. 12000 (d) Rs. 10000 corresponding a nominal rate of 7%
11. A sum of money amount to Rs. 6200 p.a. convertible quarterly is
is 2 years and Rs. 7400 in 3 years. 17. If A = Rs. 1000, n = 2 years, R = 6% 5. A sum at C.I. becomes Rs. 1,020 after 3 (a) 7% (b) 7.5%
The principal and rate of interest are p.a. compound interest payable half- yrs. & Rs.1,088 after 4 yrs. The rate of (c) 5% (d) 7.18%
(a)Rs. 3800 31.57% yearly, then principal (P) is interest is
(b)Rs. 3000, 20% (a) 888.80 (b)Rs.885 (a) 5.60% (b) 6.66%
(c)Rs. 3500, 15% (c) 800 (d) None
(d) none of these
(c) 7.66% (d) 8.66% Depreciation
18. After Mr. Gupta introduced new 6. A sum at C.I. becomes Rs. 6,500 after 6
12. A sum of Rs. 46,875 was lent out at norms, turnover of Gupta & sons went years &Rs. 7,800 after a further period of
simple interest and at the end of 1 up from Rs. 100 million to Rs 300 2 more years. The amount due after a 21. The useful life of a machine is
year 8 months the total amount was million in 3 yrs. The compounded further period of 2 more years is – estimated to be 10 years and cost
Rs. 50,000. Find the rate of interest growth rate of co. is ൫31/2 = 1.4422൯ (a)Rs. 9,360 (b)Rs. 6,500 Rs. 10000. Rate of depreciation is
per cent per annum. (a)11.22% (b) 33.22% (c)Rs. 9,100 (d)Rs. 9,390 10% p.a. The scrap value at the end
(a) 4% (b) 5% (c) 7% (d) None (c) 40% (d) 44.22% of its life is
(a) Rs. 3486 (b) Rs. 4383
7. Sohan deposited Rs.4800 in a bank after
13. It the simple interest on Rs. 20,000 19. Find the amount of Rs.2000 after 10 (c) Rs. 3400 (d) Rs. 10000
4years it becomes Rs.6000 at a certain
increases by Rs. 4,000 with the years at 8% converted quarterly for rate of compound interest what will be
increase of time by 4 Yrs. Find the rate the 1st 4 years and 6% converted his amount in the bank after 12 years. 22. A machine is depreciated at the rate
per cent per annum. monthly thereafter. (a) Rs.9375 (b) Rs.9000 of 10% on reducing balance. The
(a) 0.15% (b) 0.5% (c) 5% (d) None (a) Rs.4025.50 (b) Rs.3931.78 (c) Rs.9525 (d) None original cost was Rs. 10,000 and the
(c)Rs.2600.50 (d) None ultimate scrap value was Rs.3,750.
14. If the difference between simple 8. If the compound Interest on a certain Find the effective life of the
interest on Rs. 4,000 and on Rs. 6,500 20. A man invested one4hird of his sum of money for 2 years at 4% p.a. be machine. (Given: log 2 = 0.30103,
for 5 Yrs. Be Rs. 800 at same rate of capital at 7% one fourth at 8% and Rs.510, then its simple Interest (S.L) of log 3= 0.47712).
simple interest per annum. Then the the remainder at 10%. If the annual same time at same rate of interest is (a) 5 yrs. (b) 5.19 yrs.
rate of interest is income is Rs. 561. The capital is - (a) Rs.500 (b) Rs.510 (c) 9.3 yrs. (d) None of these
(a) 5.3% (b) 6.2% (a) Rs. 4,400 (b) Rs. 5,500 (c) Rs.450 (d) None
(c) 6.4% (d) None (c) Rs. 6,600 (d) Rs. 5,800

CA Foundation `Ama Khedia

Chap.5 Time Value of Money 5.2

Phase-2

Present Value Future Value Present Value of Future Money Leasing Concept
32. ABC Ltd. wants to lease out an asset
27. The present value of an annuity of Rs. 23. A person invests Rs. 500 at the end of Find the present value of Rs. 1,00,000 costing Rs. 3,60,000 for a five-year
3000 for 15 years at 4.5% p.a. CI is each year with a bank which pays to be required after 5 years if the period. It has fixed a rental of Rs.
(a)Rs. 23809.41 (b)Rs. 32218.63 interest at 10% p. a. C.I. annually. The interest rate be 9%. Given that 1,095 1,05,000 per annum payable annually
(c)Rs. 32908.41 (d) none of these amount standing to his credit one year starting from the end of first year.
=1.5386.
after he has made his yearly investment Suppose rate of interest is 14% per
28. A loan of Rs. 10.000 is to be paid back (a) 78,995.98
for the 12th time is. annum compounded annually on
in 30 equal instalments. The amount of (a)Rs. 11764.50 (b)Rs. 10000 (b) 64,994.15 which money can be invested by the
each installment to cover the principal (c)Rs. 12000 (d) none
(c) 88,992.43 company. Is this agreement favorable
and at 4% p.a. CI is to the company?
(a)Rs. 587.87 (b)Rs. 587 24. Rs 200 is invested at the end of each (d) 93,902.12 (a) Leasing is preferable
(c)Rs. 578.87 (d) none month in an account paying interest (b) Leasing is not preferable
6% per year compounded monthly. (c) Can’t say.
29. Y bought a TV costing Rs. 13,000 by What is the future value of this annuity Net Present Value
making a down payment of Rs. 3000 after 10TH payment?
and agreeing to make equal annual Valuation of Bond
(a) Rs. 2044 (b)Rs. 5000 33. If the cost of capital be 12% per
payment for four years. How much (c)Rs. 1200 (d) none annual, then the net present value 34. What will be the price of a bond
would be each payment if the interest (in nearest Rs. in thousand) from with a face value of Rs.1000
on unpaid amount be 14% 25. An annuity consisting of equal
the given cash flow is given as: carrying a coupon of 10%
compounded annually? payments at the end of each month for
maturing in 3 Years at 10%
(a) Rs. 3,432.05 (b) Rs. 3,932.05 2 years is to be purchased for Rs. 2000. Years 0 1 2 3 premium on par value?
(c)Rs. 15000 (d) none If the interest rate is 6% compounded
monthly, how much is each payment? Operating profit (100) 60 40 50
30. Munna purchased LED TV paying (a) Rs.826.43 (b) Rs.7835.26
(a) Rs.73.86 (b) Rs.31.60 (a) 31048 (b) 34185 (c) Rs.1075.12 (d) Rs.1000
Rs.5,000 down and promising to pay (c) Rs.78.64 (d)None
Rs.200 every quarter for next 10 years. (c) 21048 (d) 24187
The seller charges interest at the rate of 26. At the Beginning of each Period
12% per annum compounded Consisting of 6-months, Rs 500 is Capital Investment
quarterly. If Munna missed the first 10 deposited into saving account that pays CAGR Model
payments, what must he pay when the 5% compounded half-yearly. Find the 35. A machine with useful life of 7 years
Let the operating profit of a manufacturer
11th payment is due to discharge his balance in the account at the end of costs Rs. 10,000 while another
for five years is given as:
entire loan? each year. machine with useful life of 5 years
(a) Rs.5873.86 (b) Rs.7108.6 (a) Rs.5724 (b) Rs.5742 costs Rs. 8,000. The first machine
Years 1 2 3 4 5 6
(c) Rs.6399.26 (d) None (c) Rs.5472 (d) None saves labor expenses of Rs. 1900
annually and the second one saves
OP 90 100 106.4 107.14 120.24 157.34
31. Ram purchased a house for which he Perpetual Annuity labor expenses by Rs. 2,200
agreed to pay Rs.5000 at the beginning annually. Determine the preferred
36. Assuming that the discount rate is 7% Then the operating profit (OP) of
of each 3 months until he has made 10 course of action. Assume cost of
payments. If money is worth 6% p.a. how much would pay to. receive Compound Annual Growth Rate (CAGR)
borrowing as 10% per annum.
compounded quarterly, what is the Rs. 200 growing at 5% annually for for year 6 with respect to year 2 is given
(a) First machine
equivalent cash price of the house? ever? that:
(b) Second machine
(a) Rs. 46802.58 (b) Rs. 47108.60 (a) Rs. 2,500 (b) Rs. 5,000 (c) Any of two machines (a) 9% (b) 12%
(c) Rs. 46399.26 (d) None (c) Rs. 7,500 (d) Rs. 10,000 (d) Both the machine. (c) 11% (d) 13%

CA Foundation `Ama Khedia

Chap.5 Time Value of Money 5.3

Previous Year Questions

Level-1 Level-2 Level-3

Dec-2009 June-2011 June-2016

The compound interest for a certain sum @ 5% p.a. By mistake a clerk, calculated the simple interest on Mr. X bought an electronic item for Rs. 1,000. What
for first year is Rs. 25. The S-! for the same money principal for 5 months at 6.5% p.a. instead of 6 would be the future value of the same item after 2
@ 5% p.a. for 2 years will be. months at 5.5% p.a. If the error in calculation was Rs. years, if the value is compounded semi. annually at
(a) Rs. 40 (b) Rs. 50 25.40. The original sum of principal was _____. 22% per annum?
(c) Rs. 60 (d) Rs. 70. (a) Rs. 60,690 (b) Rs. 60,960 (a) Rs. 1,488.40 (b) Rs. 1,518.07
(c) Rs. 90,660 (d) Rs. 90,690 (c) Rs. 2,008.07 (d) Rs. 2,200.00
June-2010
June-2014 June-2016
if the simple Interest on a sum of money at 12% p.a.
for two years is Rs. 3,600. The compound interest The partners A and B together lent Rs. 3,903 at 4% If an amount is kept at simple interest, it earns an
on the same sum for two years at the same rate is : per annum interest compounded annually. After a interest of Rs. 600 in first two years but when kept at
(a) Rs. 3,816 (b) Rs. 3,806 span of 7 years, A gets the same amount as B gets compound interest it earns an interest of Rs. 660 for
(c) Rs. 3,861 (d) Rs. 3,860 after 9 years. The share of A in the sum of Rs. 3,903 the same period, then the rate of interest and
would have been: principal amount respectively are:
Dec-2010 (a) Rs. 1,875 (b) Rs. 2,280 (a) 20%, Rs. 1,200 (b) 10%, Rs. 1,200
(c) Rs. 2,028 (d) Rs. 2,820 (c) 20%, Rs. 1,500 (d) 10%, Rs. 1,500
Mr. X invests ‘P‘ amount at Simple Interest rate 10%
and Mr. Y invests ‘Q’ amount at Compound Interest Dec-2014 May-2018
rate 5% compounded annually. At the end of two years A certain sum of money was invested at simple rate A person borrows Rs. 5,000 for 2 years at 4% per
both get the same amount of interest, then the relation of interest for three years, if the same has been annual simple interest. He immediately lends to
between two amounts P and Q is given by : invested at a rate that was seven percent higher, the 1
41Q 41Q another person at 6 %. Per annual for 2 years find
(a) P = (b) P = interest amount would have been Rs. 382 more. The 4
80 40 his gain in the transaction for year:
(c) P =
41Q
(d) P =
41Q amount of sum invested is:
100 200 (a) Rs. 112.50 (b) Rs. 225
(a) Rs. 12,600 (b) Rs. 6,800
(c) Rs. 125 (d)Rs. 107.50
(c) Rs. 4,200 (d) Rs. 2,800
June-2011
June-2015 Nov-2018
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 A sum of money doubles itself in 8 years at simple A certain sum of money Q was deposited for 5 year
sum for 9 years at 5% p.a. The ratio will be: interest. The number of years it would triple itself is and 4 months at 4.5% simple interest and amounted
(a) 2:15 (b) 7: 15 __________. to Rs. 248, then the value of Q is
(c) 15:7 (d) 1:7 (a) 20 years (b) 12 years (a) Rs. 200 (b) Rs. 210
(c) 16 years (d) None of these (c) Rs. 220 (d) Rs. 240

CA Foundation `Ama Khedia

Chap.5 Time Value of Money 5.4

Summary Notes

CA Foundation `Ama Khedia