TIME VALUE OF MONEY NOTATIONS

R = Rate of interest n = number of periods

i = R/100 SI = Simple Interest
CI = Compound Interest

FV = Future Value PVIF = Present Value Inte

PV = Present Value PVIFA=Present Value Inte
A = Annuity FVIF = Future Value Inter
FVIFA=Future Value Inter

FV = A = Accumulated Value
PV = P = Principal Amount
 EY NOTATIONS

ber of periods
mple Interest
mpound Interest

Present Value Interest Factor

Present Value Interest Factor of Annuity
Future Value Interest Factor
Future Value Interest Factor of Annuity
 FORMULAE

Simple Interest SI = P x n x R/100 A = P (1 + n x i)

SI = P x n x i

Compound Interest CI = A - P CI = FV - PV
A = P x (1 + i) n

Present Value PV = FV / (1 + i)n PV = FV x PVIF(i,n)

Ordinary Annuity PVA = A x PVIFA(i,n) PVIFA = [1 - 1/(1 + i)n] / i

Annuity Due PVA = A (1 + i) x PVIFA(i,n) PVIFA = [(1 + i)n - 1] / i (1 + i)n

Future Value FV = PV x (1 + i)n FV = PV x FVIF(i,n)

Ordinary Annuity FVA = A x FVIFA(i,n) FVIFA = [(1 + i)n - 1] / i

Annuity Due FVA = A (1 + i) x FVIFA(i,n)

Doubling Period Rule 72 = 72 / R Rule 69 = 0.35 + 69 / R

Effective Rate of Interest = (1 + i/m)m -1 m = number of periods per year

Effective Rate = Interest * 100 / P

Net Present Value = PV of Cash Inflows - Investment

Present Value of Growing Annuity

PVGA = PV (1 + g) * [[1 - (1 + g)n/(1 + i)n]/(i - g)]

Present Value of a Perpetuity

PVP = A' / i PVP = X / i A' = X = Constant Annual paym

Present Value of Growing Perpetuity

PVGP = A1 / (i - g) A1 = First Payment

0 1 2 ….. 14 15 16 17
A A A 3312000 100000 100000
= ( 1 + 0.1/2)^2 - 1
= 0.1025
 A = P + SI

PVIF = 1 / (1 + i)n

[1 - 1/(1 + i)n] / i
[(1 + i)n - 1] / i (1 + i)n

FVIF = (1 + i)n

[(1 + i)n - 1] / i

0.35 + 69 / R

ber of periods per year

]/(i - g)]

Constant Annual payment

18 19
100000 100000
 102.5

= ( 1 + 0.1/2)^2 - 1 = ( 1 + 0.1/4)^4 - 1 #DIV/0!

= 0.1038
 6.1 PV = 1000
n=5
I = 8/100 = 0.08

FV = PV x (1 + i)n FV = PV x FVIF(i,n)
= 1000 (1.08)^5 = 1000 x 1.4693
= 1469.3 = 1469.3

6.2 Rule 72 PV = 5000 R = 12

N = 72 / R
= 72 / 12 = 6 Years

FV after 6 years = 5000 x 2 = 10000

FV after 12 Years
FV after 18 Years
FV after 24 Years
FV after 30 Years

6.3 PV = 1000
N = 12 YEARS
FV = 8000
R=I=? Rule 69 = 0.35 + 69 / R
12/3 = 0.35 + 69 / R
1000 3.65 = 69 / R
1st Double 2000 R = 18.93%
2nd Double 4000
3rd Double 8000

6.4 A = 2000
N=5 FVIFA = [(1 + i)n - 1] / i
I = 10% = 0.1

FVA = A x FVIFA(i,n)
= 2000 x 6.105
= 12210 (at the end of 5th Year)

FV15 = FV5 x FVIF(10%,10)

= 12210 x 2.5937
= 31669
FV15 = FV5 x (1 + i)^n
 6.5
FVA = 10,00,000
N= 10
I = 0.12

FVA = A x FVIFA(i,n)
10,00,000 = A x 17.549
A = 56983.30

6.6 FV= 10000

A = 1000
N=6

FVA = A x FVIFA(i,n) FVIFA = [(1 + i)n - 1] / i

10000 = 1000 X FVIFA 10 = [(1 + i)^6 -1] / i
FVIFA = 10 I = 0.2027

6.12
Cash
Years
inflow PVIF @ 12% PV
1 1000 0.893 893
2 2500 0.797 1992.5
3 5000 0.712 3560
4 5000 0.636 3180
5 5000 0.567 2835
6 5000 0.507 2535
7 5000 0.452 2260
8 5000 0.404 2020
9 5000 0.361 1805
10 5000 0.322 1610
TOTAL 22690.5

6.13 A= 2000
n=5
I = 0.1

PVA = A x PVIFA(i,n) A' = 3000

= 2000 x 3.7908 PVP = A' / i
= 7581.6 = 3000 / 0.1
PV5 = 30000 (at the end of 5th Year)

PV0 = PV5 / (1 + i)^n PV0 = 30000 / (1 + 0.1)^5

= 18630
 TOTAL PV = 7581 + 18630 = 26211

6.8 FV = 10000
n=8
I = 0.1

PV = FV / (1 + i)n PV = FV x PVIF(i,n)
= 10000 / (1.1)^8 = 10000 x 0.4665
= 4665.26 = 4665

6.14 PV ?
A' = 5000 starting from end of 15th Year

PV0 = A' / I x PVIF(10%,14)

6.16 A
Cash
Years
inflow PVIF @ 12% PV
1 100 0.893 89.3
2 200 0.797 159.4
3 300 0.712 213.6
4 400 0.636 254.4
5 500 0.567 283.5
6 600 0.507 304.2
7 700 0.452 316.4
8 800 0.404 323.2
9 900 0.361 324.9
10 1000 0.322 322
TOTAL 2590.9

6.15 PV = 20000
A = 4000
n = 10
I?
 PVA = A x PVIFA(i,n) PVIFA = [(1 + i)n - 1] / i (1 + i)n

PVA = A x [(1 + i)n - 1] / i (1 + i)n

20000 = 4000 x [(1 + i)^10 - 1] / i (1 + i)^10
I = 0.1510
R = 15.10%

6.17 PV = 10000 Compounding quarterly

n=5 n = 5 x 4 = 20
I = 16 I = 16 / 4 = 4 = 0.04

FV = PV x (1 + i)n FV = PV x FVIF(i,n)
= 10000 x (1.04)^20 = 10000 x 2.1911
= 21911.23 = 21911

6.30 PV = 500000 I = 0.14 n=4

PVA = A x PVIFA(i,n)
500000 = A x 2.9137 171603.1163
A = 171603

LOAN AMORTISATION SCHEDULE

Opening Annual Principal

Year Balance Instalment Interest repayment
1 500,000 171,603 70,000 101,603
2 398,397 171,603 55,776 115,827
3 282,570 171,603 39,560 132,043
4 150,526 171,603 21,074 150,529

Total 686,412 186,409 500,003

Opening Annual Principal

Year Balance Instalment Interest repayment
1 500,000 171,585 70,000 101,585
2 398,415 171,585 55,778 115,807
3 282,608 171,585 39,565 132,020
4 150,588 171,585 21,082 150,503

Total 686,340 186,426 499,914

 6.28 Year FVA = A x FVIFA(i,n)
1 A 2192.2 = A x 5.8666
2 A A = 373.674
3 A
4 A
5 A FV5 = 2192.2
6
7 FV7 = 2557.1
PV8
8 1000
9 1000
10 1000

6.44 A = 500000 A' = 300000

I=?
n = 10
PVP = A' / i
PVA = = 300000 / i

PVA = A x [(1 + i)n - 1] / i (1 + i)n

PVIFA = [1 - 1/(1 + i)n] / i

Pension = 10000 p.m.

Pension = 10000 x 12 = 120000 x 30 % = 36000

PV = ? A = 36000
n = 15 Years
i = 0.12

PV5 = A x PVIFA(I,n) = 245191

 FV5 = 245191

PV = FV5 / (1 + i)^n
= 139127

r = 8%

A = ? At the end from 1st to 15th Year

PV = FV / (1 + r)^n
Year
15 1,000,000 = 10,00,000
16 1,000,000 = 10,00,000 / (1.08)^1
17 1,000,000 = 10,00,000 / (1.08)^2
18 1,000,000 = 10,00,000 / (1.08)^3
Total value at end of 15th Ye

FV15 = 3,77,096 A = 10,00,000

A=? n = 4 Years
N = 15 PVA = A (1 + r) x PVIFA
r = 0.08 = 10,00,000 (1.08) x 3.3121
= 35,77,068
FVA = A x FVIFA

35,77,096 = A x [(1 + r)^n -1] / r

131740 = A

FVA = 5,00,000
A=?
n = 25
r = 0.04

5,00,000 = A x [(1 + r)^n -1] / r

5,00,000 = A x [(1 + 0.04)^25 -1] / 0.04

12006

FVA = 40,00,000
A=?
n = 30
r = 0.03
40,00,000 = A (1 + r) x [(1 + r)^n -1] / r

81628.905

n = 12
A = 10,000 will begin 8 years hence
r = 14%

PVA = A x PVIFA
= 10,000 x 5.6603
= 56603 at the start of 8th Years

end of 7 year = start of 8th Year

FV7 = 56603
n=7
r = 0.14

PV = FV / (1 + r)^n
= 56603 / 1.14^7

Given
Cost of truck (PV) = 40000

Lease (A) = 8000 every year at end

n = 6 Years
i = 7/100 = 0.07

PVA = A x PVIFA(i,n)
= 8000 x 4.7665
= 38132 38132

Lease is cheaper rather than to buy.

As PV of Annual lease is Rs, 38132 which is less than cost of truck Rs. 40000

PV = 1000000 I = 0.09 n=4

PVA = A x PVIFA(i,n)
1000000 = A x 3.2397 308670.5559
 A = 308670

LOAN AMORTISATION SCHEDULE

Opening Annual Principal
Year Balance Instalment Interest repayment
1 1,000,000 308,670 90,000 218,670
2 781,330 308,670 70,320 238,350
3 542,980 308,670 48,868 259,802
4 283,178 308,670 25,492 283,178

Total 1,234,680 234,680 1,000,000

n Year Cashflow FVIF @5%

4 1 2000 1.2155
3 2 3000 1.1576
2 3 4000 1.1025
1 4 5000 1.0500
0 5 6000 1.0000
Future Value of all cash flows

Year Cashflow PVIF @5%

1 2000 0.9524
2 3000 0.9070
3 4000 0.8638
4 5000 0.8227
5 6000 0.7835
Present Value of all cash flows

PV = 500000
i = 0.14 / 2 = 0.07
n = 5 x 2 = 10

FV = PV x (1 + i)^n
= 500000 x 1.07^10
= 983576 983575.7
Effective Rate of Interest = (1 + i/m)m -1 m = number of periods per y

= (1 + 0.14/2)^2 - 1 1.1449
= 1.1449 - 1
= 0.1449
= 14.49%
 CEC
A = 20000 A' = 30000
I = 0.14
n = 10

PVA = A x PVIFA(i,n) PVP = A' / i

= 20000 x 5.2161 = 30000 / 0.14
= 104322 = 214286
(at the end of 10th year)
PVA0
1 20000 PV = FV x PVIF(i,n)
20000 2 = 214286 x 0.2697
40000 3 = 57793
80000 10 20000
160000 PVP10
11 30000 TOTAL PV = 104322 + 57793
= 162115

A = 3000
N = 10
I = 10% = 0.1

FVA = A x FVIFA(i,n)
= 3000 x 15.937
= 47811

total FV15 = 31669 + 47811 = 79480

 6.5
FVA = 35,00,000
N= 15
I = 0.18

FVIFA = [(1 + i)n - 1] / i FVA = A x FVIFA(i,n)

11.9737 35,00,000 = A x 60.965
10.9737 A = 57410
60.9653

57409.7

FA = [(1 + i)n - 1] / i
[(1 + i)^6 -1] / i

R = 20.27%

1/1.12=

he end of 5th Year)

PVP = A' / i
= 5000 / 0.10
= 50000
(at the end of 14th year)

PV = FV x PVIF(10%,14)
= 50000 x 0.2633
= 13165
1] / i (1 + i)n

Compunded
Half Yearly i/2 nx2
quaterly i/4 nx4
monthly i/12 n x 12

Closing
Balance
398,397 Interest = Op balance x i
282,570 Principal payment = Annual instalment - Interest
150,526 Closing Balance = op bal - principal repayment
-3
effect of round off
0

Closing
Balance
398,415
282,608
150,588
86

0
 = A x FVIFA(i,n)
2.2 = A x 5.8666

PV = FV x PVIF(i,n) = 2557.1 x 0.8573 = 2192.2

n =3 I = 0.08
PVA = A x PVIFA(i,n)
= 1000 x 2.5771
= 2577.1
rom 1st to 15th Year

= 10,00,000
= 925925
= 857339
= 793832
l value at end of 15th Year = 35,77,096

10,00,000

= A (1 + r) x PVIFA
,00,000 (1.08) x 3.3121
n cost of truck Rs. 40000
Closing
Balance
781,330 Interest = Op balance x i
542,980 Principal payment = Annual instalment - Interest
283,178 Closing Balance = op bal - principal repayment
0
effect of round off
0

FV
2431.01 FVIF = (1 + i)n
3472.88
4410
5250
6000
21563.9

FV
1904.76
2721.09
3455.35
4113.51
4701.16
16895.9
number of periods per year
nd of 10th year)

6 x 0.2697
5
Doubling Period Rule 72 = 72 / R
= 72 / 8 = 9 Years

PV = 25000 25000 50000 9

FV = 1600000 50000 100000 9
r = 0.08 100000 200000 9
200000 400000 9
400000 800000 9
FV = PV x (1 + r)^n 800000 1600000 9
1600000 = 25000 x (1.08)^n 54 Years
64 = (1.08)^n 63.80913
n = 54.03
= 54 Years

6 FV = 550000 n = 5 Years r = 0.10

PV = FV / (1 + r)^n
= 550000 / 1.10^5
= 341507

9 A = 75000 n=4 r = 0.11

FVA = A x FVIFA(r, n) FVIFA = [(1 + i)n - 1] / i

= 75000 x 4.7097
= 353230

10 A' = Perpetuity = 75000 i = 0.08

PVP = A' / i = 75000 / 0.08 = 937500

11 FV = 1000 C = 12% n = 10 - 3 = 7

I = FV x C = 1000 x 12% = 120 r = 0.10 M = FV = 1000

a PV of Bond = I x PVIFA + M/(1 + r)^n

= 120 x 4.8684 + 1000 / 1.10^7 584.208
= 1097.36 513.1581
b r = 0.16
PV of Bond = I x PVIFA + M/(1 + r)^n
= 120 x 4.0386 + 1000 / 1.16^7 484.632
= 838.46 353.8295
12th July
1) Suppose you invest Rs.1,000 for three years in a
Fixed deposit account that pays 10% interest 3)
p.a. If you let your interest income be
reinvested, your investment will grow as follows

Given
PV = 1000 n=3 i = 0.10

FV = PV x (1 + i)n FV = PV x FVIF(i,n)
= 1000 X (1 + 0.10) 3
FV = PV + SI
= 1000 x 1.331
= 1331

2) Suppose you deposit Rs. 1,000 today in a bank

@10%p.a. interest compounded annually. How 1
much will the deposit grow to after 8 years and 2
12 years? 3

Given 4) Sachin deposited Rs.1,00,

How much interest would he
PV = 1000 n=8 i = 0.10

FV = PV x (1 + i)n FV = PV x FVIF(i,n)
= 1000 X (1 + 0.10)8 = 1000 x
= 1000 x 2.1436
= 2143.6
FV = PV + SI

5 What sum of money will produce Rs.28,600 as

SI = 28600

months convert in decimal - divide

SI = PV x n x i

PV = SI / n x i
= 28600 / (3.25 x 0.025)
= 352000
Compunded
Half Yearly i/2 nx2 6) In what time will Rs. 8,000 amount to Rs. 8,8
quaterly i/4 nx4
 monthly i/12 n x 12 PV = 8000

PV = FV / (1 + i)n
8000 = 8820 / (1 + 0.05)n

(1 + 0.05)n = 8820/8000

1.05^n

n = 2 half years
n = 1 year

7) Find the rate percent per annum if Rs. 2,00,000 amount to Rs. 2,31,525 in 1½ year inte
I = ???? PV = 200000 FV = 231525
FV = PV x (1 + i)n
231525 = 200000 x (1 + i)3

1.157625 = (1 + i)3

Taking cube root on both side

1.05 = 1 + i
I = 0.05 half yearly
I = 0.10 yearly
R = 10% = I x 100

8) Rs. 2,000 is invested at annual rate of interest of 10%. What is the amount after two years if compounding is d

PV = 2000 i = 0.10 Annually semi-Ann quaterly

n=2 n=4 n=8
2x2 2x4

i = 0.10 i = 0.05 i = 0.025

0.10/2 0.10/4

FV = PV x (1 + i)n

a) = 2000 x (1.10)2 = 2420

b) = 2000 x (1.05)4 = 2431.01
c) = 2000 x (1.025)8 = 2436.8
d) = 2000 x (1.00833)24 = 2440.59
9) If Rs. 8,00,000 is invested @ 8% simple interest for 3 years and @ 7.5% compound interest (Half yearly

SI
PV = 800000 n=3 i = 0.08 PV = 800000

SI = P x n x i
= 800000 x 3 x 0.08 FV = PV x (1 + i)n
= 192000 = 800000 X (1 + 0.0375)^6
= 997742.84
FV = PV + SI
= 800000 + 192000 Compound interest investment will
= 992000

10) A person opened an account on 1st April, 2009 with a deposit of ` 800. The account paid 6% interest compo
additional money to invest in a 6 month time-deposit for ` 1,000, earning 6%compounded month
1. How much additional amount did the person invest on October 1?
2. What was the maturity value of his time deposit on April 1 2012?
3. How much total interest was earned?

PV = 800 I = 0.06 N = 1st April 2009 to 1st oct 2011

n = 2.5 years 2 years 6 months
i = 0.06/4 = 0.015 n = 2.5 x 4 = 10 (Compounded quaterly

FV = PV x (1 + i)n
= 800 X (1 + 0.015)^10 New Investment
= 928.43 PV = 1000

FV = PV x (1 + i)n
= 1000 X (1 + 0.005)^6
2. = 1030.38

Total Interest = (928.43 - 800) + (1030.38 - 1000)

3. = 158.81

PV = 1000
n=5
I = 8/100 = 0.08
FV = PV x (1 + i)n FV = PV x FVIF(i,n)
= 1000 (1.08)^5 = 1000 x 1.4693
= 1469.3 = 1469.3

Rule 72 PV = 5000 R = 12
N = 72 / R
= 72 / 12 = 6 Years

FV after 6 years = 5000 x 2 = 10000

FV after 12 Years 20000
FV after 18 Years 40000
FV after 24 Years 80000
FV after 30 Years 160000

PV = 1000
N = 12 YEARS
FV = 8000
R=I=? Rule 69 = 0.35 + 69 / R
12/3 = 0.35 + 69 / R
1000 3.65 = 69 / R
2000 R = 18.93%
4000
8000

A = 2000 A = 3000
N=5 N = 10
I = 10% = 0.1 I = 10% = 0.1

FVA = A x FVIFA(i,n) FVA = A x FVIFA(i,n)

= 2000 x 6.105 = 3000 x 15.937
= 12210 (at the end of 5th Year) = 47811

FV15 = FV5 x FVIF(10%,10) total FV15 = 31669 + 47811

= 12210 x 2.5937
= 31669

FVA = 10,00,000
N= 10
I = 0.12

FVA = A x FVIFA(i,n)
 10,00,000 = A x 17.549
A = 56983.30

FV= 10000
A = 1000
N=6

FVA = A x FVIFA(i,n) FVIFA = [(1 + i)n - 1] / i

10000 = 1000 X FVIFA 10 = [(1 + i)^6 -1] / i
FVIFA = 10 I = 0.2027

Cash PVIF @
Years
inflow 12% PV
1 1000 0.893 893 1/1.12=
2 2500 0.797 1992.5
3 5000 0.712 3560
4 5000 0.636 3180
5 5000 0.567 2835
6 5000 0.507 2535
7 5000 0.452 2260
8 5000 0.404 2020
9 5000 0.361 1805
10 5000 0.322 1610
TOTAL 22690.5

A= 2000
n=5
I = 0.1

PVA = A x PVIFA(i,n) A' = 3000

= 2000 x 3.7908 PVP = A' / i
= 7581.6 = 3000 / 0.1
= 30000 (at the end of 5th Year)

PV = 30000 x 0.6209
= 18630

TOTAL PV = 7581 + 18630 = 26211

 An investment of Rs. 1,000, if invested @12%p.a. for 5 years become.
Find Simole Interest and total amount that will be received
PV = 1000 n=5 i = 0.12

SI = PV x n x i
= 1000 x 5 x 0.12
= 600

FV = PV + SI FV = PV x FVIF(i,n)
= 1000 + 600 = 1000 x 1.7623
= 1600 = 1762.3

SI CI
1000 100 1100 1 1000 100 1100
1100 100 1200 2 1100 110 1210
1200 100 1300 3 1210 121 1331

4) Sachin deposited Rs.1,00,000 in his bank for 2 years at simple interest rate of 6%.
How much interest would he earn? How much would be the final value of deposit?
PV = 100000 n=2 i =0.06

SI = PV x n x i
= 100000 x 2 x 0.06
= 12000

FV = PV + SI
= 100000 + 12000
= 112000

ney will produce Rs.28,600 as an interest in 3 years and 3 months at 2.5% p.a. simple interest?

n = 3.25 i =0.025 PV = ????

onvert in decimal - divide by 12 0.25

(3.25 x 0.025)

l Rs. 8,000 amount to Rs. 8,820 at 10% per annum interest compounded half-yearly?
 FV = 8820 i = 0.1 n = ????
I = 0.10/2 = 0.05

PV = FV / (1 + i)n
8000 = 8820 / (1 + 0.05)n

1 + 0.05)n = 8820/8000

= 1.1025 n = log(1.1025)/log(1.05)

n = 2 half years
n = 1 year

Rs. 2,31,525 in 1½ year interest being compounded half-yearly.

N = 1.5 X 2 = 3

two years if compounding is done (a) Annually (b) Semi-annually (c) Quarterly (d) monthly

monthly
n = 24
2 x 12

i = 0.008333
0.10/12
mpound interest (Half yearly compounding) which investment will give more returns?

CI
n=3 i = 0.075
N=6 I = 0.0375

X (1 + 0.0375)^6

d interest investment will grow more and give more returns

count paid 6% interest compounded quarterly. On October 1 2011 he closed the account and added enough
earning 6%compounded monthly.

1. = 1000 - 928.43 = 71.57

to 1st oct 2011

2 years 6 months
Compounded quaterly

N = 1st oct 2011 to 1st April 2012

n = 6 months
I = 0.06/12 = 0.005
 = 10% = 0.1

FVA = A x FVIFA(i,n)
= 3000 x 15.937

otal FV15 = 31669 + 47811 = 79480

(1 + i)n - 1] / i

d of 5th Year)
13th July

1) What is the present value of Rs.1,000 receivable 20 years hence if the discount rate is 8%?
FV = 1000 n = 20 I = 0.08

PV = FV / (1 + i)n PV = FV x PVIF(i,n)
= 1000 / (1.08)^20 = 1000 x 0.21455
= 214.55 = 214.55

2) Calculate the present value of an uneven cash flow using discount rate of 12%.
Year Cash Flow (Rs.) FV
1 1,000 Year Cashflow PVIF@12%
2 2,000 1 1000 0.893
3 2,000 2 2000 0.797
4 3,000 3 2000 0.712
5 3,000 4 3000 0.636
6 4,000 5 3000 0.567
7 4,000 6 4000 0.507
8 5,000 7 4000 0.452
8 5000 0.404
Present Value of all cash flows

3) If you invest Rs. 5,000 today at a compound

interest of 9%, what will be its future value after 75 years?

Given
PV = 5000 n = 75 i = 0.09

FV = PV x (1 + i)n FV = PV x FVIF(i,n)
= 5000 X (1 + 0.09)75

= 3205954.4

4) If the interest rate is 12%, what are the doubling periods as per the rule of 72 and the rule o

R = 12

Doubling Period Rule 72 = 72 / R Rule 69 = 0.35 + 69 / R

= 72 / 12 = 0.35 + 69/12
= 6 years = 0.35 + 5.75
 = 6.1 years

5) What is the present value of Rs. 1,000,000 receivable 60 years from now, if the discount ra
FV = 1000000 n = 60 I = 0.10

PV = FV / (1 + i)n PV = FV x PVIF(i,n)
= 1000000 / (1.10)^60 0.21455
= 3284.27 = 3284.27

6) You deposit Rs. 1,000 annually at the end of the year in a bank for 5 years and your depos
What will be the value of this series of deposits (an annuity) at the end of 5 years?

A = 1000 n=5 i = 0.1

FVA = A x FVIFA(i,n) FVIFA = [(1 + i)n - 1] / i

= 1000 x 6.1051
= 6105.1 = ((1+0.1)^5-1)/0.1

PVA = A x PVIFA(i,n) PVIFA = [(1 + i)n - 1] / [i (1 + i)n]

= 1000 x 3.7908
.= 3790.80

7) You decide to deposit Rs. 30,000 annually at the end of each year in Public Provident Fund
What will be the accumulated amount in your PPF A/c at the end of 30 years?

A = 30000 n = 30 i = 0.08

FVA = A x FVIFA(i,n)
= 30000 x 113.283 FVIFA = [(1 + i)n - 1] / i
= 3398496.33

8) You want to buy a house after 5 years when it is expected to cost Rs. 2million. How much

FV = 2000000 n =5 i = 0.12

FVA = A x FVIFA(i,n)

2000000 = A x 6.3528 FVIFA = [(1 + i)n - 1] / i

2000000 / 6.3528 = A
 A = 314821

9) Futura Limited has an obligation to redeem Rs.500 million Debentures 6 years hence. How

FV = 500 n =6 i = 0.14

FVA = A x FVIFA(i,n)

500 = A x 8.5355

500 / 8.5355 = A

A = 58.5788 million

10) A finance company advertises that it will pay a lumpsum of Rs. 8,000 at the end of 6 years
What interest rate is implicit in this offer?

FV = 8000 n=6 A = 1000 I = ???

FVA = A x FVIFA(i,n)

8000 = 1000 x FVIFA(I,6)

8 = FVIFA FVIFA = [(1 + i)n - 1] / i

I = 0.11433 i.e 11.43%

11) Y bought a TV costing Rs. 13000 by making a down payment of Rs. 3000 and agreeing to m
How much would be each payment if the interest on unpaid amount be 14% compounded

COST OF TV = 13000 i = 0.14 A = ????

Down payment = 3000
to be paid = PV = 10000

PVA = A x PVIFA(i,n) PVIFA = [(1 + i)n - 1] / [i (1 + i)n]

10000 = A x 2.9137
10000 / 2.9137 = A

A = 3432.06
12) ABC Ltd. wants to lease out an asset costing Rs. 360000 for a five year period. It
has fixed a rental of Rs. 105000 per annum payable annually starting from the end of first
year. Suppose rate of interest is 14% per annum compounded annually on which money c
be invested by the company. Is this agreement favourable to the company?

A = 105000 i = 0.14 n = 5 Cost of Asset = PV = 360000

PV = ????

PVA = A x PVIFA(i,n)
'= 105000 x 3.4331
= 360475.5

Decision: Since the PV of lease rental is more than the cost of the asset, it is advisable to
No, this agreement is not favourable to the company

13) A company is considering proposal of purchasing a machine either by making full paymen
Which course of action is preferable if the company can borrow money at 14% compounde

A = 1250 i = 0.14 n = 4 Cost of Machine = PV = 4000

PV =????

PVA = A x PVIFA(i,n)
= 1250 x 2.9137
= 3642.13

Decision: Since the PV of lease rental is less than the cost of the machine, it is advisable t

Time 0 1 2 3 4 5
Amt X 250000
573775

Year Cashflow PVIF@9%

5 250000 0.64993139
 6 250000 0.59626733
7 250000 0.54703424
8 250000 0.50186628

Present Value of all cash flows

Time 0 1 2 3 4 5
Amt A A A A A

n=7 i = 0.08

FVIFA = 8.9228

FV = A x 8.9228

17050246.4 = A x 8.9228

A= 1910862.78

Time 0 1 2 3 4 5
A A A A A
14156130
e discount rate is 8%?

1 / 1.08

ate of 12%.

PV = 1 + 0.12
893 = 1.12 =1 / 1.12^1
1594
1424 PV = Cashflow x PVIF
1908
1701
2028
1808
2020
13376

PV = 500000 n = 15 i = 0.12
as semiannually 2n = 30 i/2 = 0.12/2 = 0.06
FV = PV x (1 + i)n FV = PV x FVIF(i,n)
= 500000 X (1 + 0.06)30

= 28,21,745

ule of 72 and the rule of 69 respectively?

0.35 + 69/12
0.35 + 5.75
 ow, if the discount rate is 10%?

years and your deposits earn a compound rate of 10%.

nd of 5 years?

at the beginning
FVA = A (1 + i) x FVIFA(i,n)

Public Provident Fund(PPF) Account for 30 years which is fetching you a rate of return of 8%p.a.

. 2million. How much should you save annually (at the end of each year) if your savings earn a compound ret
s 6 years hence. How much should the company deposit annually in a sinking fund account wherein it earns

at the end of 6 years to investors who deposit annually Rs. 1,000 for 6 years.

000 and agreeing to make equal annual payment for four years.
be 14% compounded annually?

n=4
ar period. It
from the end of first
lly on which money can

et = PV = 360000

set, it is advisable to get the asset basis. Additional benefit = 475.50

by making full payment of Rs.4000 or by leasing it for four years at an annual rate of Rs.1250.
ey at 14% compounded annually

chine = PV = 4000

chine, it is advisable to get the machine on lease. Additional benefit = 357.87

6 7 8
250000 250000 250000

PV
162482.84657
 149066.83172
136758.56121
125466.56992

573774.80942

1 2 3
6 7 8 9 10
A A 6000000 6000000 8000000

17050246.406

Year Cashflow PVIF @ 8% PV

1 6000000 0.9259259 5555555.56
2 6000000 0.8573388 5144032.92
3 8000000 0.7938322 6350657.93
17050246.4

4 5
6 7 8 9 10
10000000 10000000

Year Cashflow PVIF @ 8% PV

4 10000000 0.7350299 7350298.53
5 10000000 0.6805832 6805831.97

14156130.5
Year n Cashflow FVIF @ 12% FV
1 7 1000 2.21068 2210.6814
2 6 2000 1.97382 3947.6454
3 5 2000 1.76234 3524.6834
4 4 3000 1.57352 4720.5581
5 3 3000 1.40493 4214.784
6 2 4000 1.2544 5017.6
7 1 4000 1.12 4480
8 0 5000 1 5000
Future Value of all cash flows 33115.952

Year Cashflow PVIF@9% PV

1 300000 0.91743 275229.36
2 450000 0.84168 378756
3 200000 0.77218 154436.7
4 100000 0.70843 70842.521
5 250000 0.64993 162482.85

Present Value of all cash flows 1041747.4

Less : Investment 1000000
Net Present Value 41747

This investment is viable because NPV is positive

The PV of cash flows is more than Investment
of 8%p.a.

earn a compound return of 12 %?

count wherein it earns 14% interest, to cumulate Rs.500 million in 6 years time?
15th July

1) A machine with useful life of seven years costs Rs. 10000 while another machine with us
labour expenses of Rs. 1900 annually and the second one saves labour expenses of Rs.
preferred course of action. Assume cost of borrowing as 10% compounded per annum.
Machine 1
Investment /Cost 10000
Annual Savings (A) 1900 i = 0.1
n 7

Present Value of Savings

PVA = A x PVIFA(i,n)

M1 = 1900 x 4.8684 M2 = 2200 x 3.7908

= 9249.96 = 8339.76

Net Present Value = PV of Cash Inflows - Investment

(NPV)
M1 = 9250 - 10000 = -750 M2 = 8340 - 8000 = 340

2) Mr. Santosh has started business with Rs. 8,00,000 as an initial investment and is expect
Calculate the present value of cashflows if the discounting factor is 12%.
Year 1 2 3 4 5
CI 175000 210000 375000 240000 150000

Year Cashflow PVIF@12% PV

1 175000 0.893 156275
2 210000 0.797 167370
3 375000 0.712 267000
4 240000 0.636 152640
5 150000 0.567 85050

Present Value of all cash flows 828335

3) MR. X is Investing Rs. 15,000 at the end of each year @ 12% interest rate for 20 years the

A = 15000 i = 0.12 n = 20

FVA = A x FVIFA(i,n) FVA = A x [(1 + i)n - 1] / i

4) MR. X is Investing Rs. 15,000 at the beginning of each year @ 12% interest rate for 20 yea

A' = 15000 i = 0.12 n = 20

FVA = A (1 + i) x FVIFA(i,n) FVA = A (1 + i) x [(1 + i)n - 1] / i

5) MR. X want to purchase a house worth Rs. 75,00,000 at the end of 10 years. How much am
What will be your answer if the amount is invested at the beginning of each year?

FV = 7500000 n = 10 i = 0.12

FVA = A x FVIFA(i,n) FVA = A x [(1 + i)n - 1] / i

FVA = A (1 + i) x FVIFA(i,n) FVA = A (1 + i) x [(1 + i)n - 1] / i

6) Mr. Dinesh wants to invest Rs. 80 lacs in a scheme in Bank of England where he deposits
All the other banks offer an interest rate of 12% p.a. He has enquired deposit application
Bank A: Interest will be credited on half-yearly basis.
Bank B: Interest will be credited on quarterly basis.
Bank C: Interest will be credited on monthly basis.
Bank D: Interest will be credited on weekly basis.
If Mr. Dinesh cares for every extra rupee, which Bank will be preferred?
What should be the minimum rate Bank B should offer to attract Dinesh’s deposit?

1) Bank of England = P + Pnr = 80,00,000+ (80,00,000*1*12.5%) = 90,00,0

FV = P + SI = P + Pni = 9000000

Bank A = P (1 + i/2)2n = 80,00,000 (1 + 12%/2)2 = 80,00,000 (1.06)2 = 89,88

FV = P x (1 + i)n = 8000000 x (1.06)^2

Bank B = P(1+r/4)4n= 80,00,000(1+12%/4)4= 80,00,000(1.03)4= 90,04,070.48

Bank C = P(1+r/12)12n=80,00,000(1+12%/12)12= 80,00,000(1.01)12= 90,14,6

Bank D = P(1+r/52)52n=80,00,000(1+12%/52)52= 80,00,000(1.0023076)52= 9

What should be the minimum rate Bank B should offer to attract Dinesh’s deposit?
 1) Maturity value of Bank B = Maturity value of Bank D
FV = P x (1 + i)n
8000000 x (1 + i)^4 = 9018727.89

i = 0.030418 for quarter

I = 0.030418 x 4 = 0.1217

7) Calculate the present value of future cash flows (Discounting factor 10%)
Particulars Zeta Meta
Investment 1,500,000 1,100,000
Cash Inflows
Year 1 600,000 600,000
Year 2 600,000 400,000
Year 3 600,000 500,000
Year 4 600,000 200,000

8) Year Cashflow FVIF@5%

4 1 2000 1.2155
3 2 3000 1.1576
2 3 4000 1.1025
1 4 5000 1.05
0 5 6000 1

Future Value of all cash flows

nother machine with useful life of five years costs Rs. 8000. The first machine saves
abour expenses of Rs. 2200 annually. Determine the
mpounded per annum.
Machine 2
8000
2200
5

00 x 3.7908 PVIFA = [(1 + i)n - 1] / [i (1 + i)n]

M2 = 8340 - 8000 = 340 , it is advisable to purchase Machine 2

nvestment and is expecting following cashflows for next 5 years.

Investment = 800000

Net Present Value = PV of Cash Inflows - Investment

(NPV)
= 828335 - 800000
= 28335

est rate for 20 years then what is the maturity value?

Ordinary Annuity = at the end

Annuity immediate

FVA = 10,80,786.63
% interest rate for 20 years then what is the maturity value?

Annuity Due = at the beginning

(1 + i) x [(1 + i)n - 1] / i

f 10 years. How much amount is required to be invested at the end of each year if rate of interest is 12%?
ng of each year?

A = ???

= 4,27,381.23

(1 + i) x [(1 + i)n - 1] / i = 3,81,590.38

gland where he deposits the amount for one year @ 12.5% simple interest.
red deposit application forms of 4 banks, particulars of which are as follows —

P = 8000000

Dinesh’s deposit?

0,000*1*12.5%) = 90,00,000 n=1 year i = 0.125

0,00,000 (1.06)2 = 89,88,800 n=2 half year I = 0.12 / 2 = 0.06

000(1.03)4= 90,04,070.48 n=4 quarters I = 0.12 / 4 = 0.03

0,00,000(1.01)12= 90,14,600.24 n = 12 months I = 0.12 / 12 = 0.01

0,00,000(1.0023076)52= 90,18,727.89 n = 52 weeks I = 0.12 / 52 = 0.0023076

Dinesh’s deposit?
R = 12.17%

FV
2431 FVIF = (1 + i)n
3472.8
4410
5250
6000

21563.8
rate of interest is 12%?

12 = 0.01

52 = 0.0023076
19th July

1. A finance company advertises that it will pay a lump sum of Rs.8000 at the end of 6 y

FV = 8000 n=6 A = 1000 I = ?

FVA = A x FVIFA(i,n) FVIFA = [(1 + i)n - 1] / i

1. You want to take up a trip to the moon which costs Rs.1000000 and you can save Rs

FV = 1000000 I = 0.12 A = 50000

FVA = A x FVIFA(i,n)

1000000 = 50000 x FVIFA(0.12,N)

20 = FVIFA

FVIFA = [(1 + i)n - 1] / i X = 10.8 years

1. Ravi wants to save for college education of his son which is estimated at Rs.100000

FV = 1000000 per year for 4 years

I = 0.08 1 t0 15 15th year end or 16th year begning

n = 15 A FVA = 3577068

FVA = A x FVIFA(i,n)
3577068 = A x 27.152
A = 131743

1. Raghavan will receive an annuity of Rs.50000payable once every two years. The pay
after two years. If the annual interest rate is 8 per cent, what is the present value of the an

A = 50000 I = 0.08

PVA = A x PVIFA(i,n)
= 50000 x 8.5595
= 427975

1. If you deposit Rs.10000 with a person, he promises to pay Rs. 2500 annually for 6 ye

PV = 10000 n=6 A = 2500

PVA = A x PVIFA(i,n) 10000 = 2500 x [1 - 1/(1

PVA = A x [1 - 1/(1 + i)^6] / i I = 0.1298
R = 13%

1. You want to borrow Rs.1080000 to buy a flat. The rate of interest is 12.5 per cent and
What should be the maturity period of loan?

n=? PV = 1080000 I = 0.125

PVA = A x PVIFA(i,n)

1080000 = 180000 x [1 - 1/(1 + 0.125)^n] / 0.125

As a winner of a competition, you can choose one of the following prizes:

a. Rs. 8,00,000 now
b. Rs. 20,00,000 at the end of 8 years
c. Rs. 1,00,000 a year, forever
d. Rs. 1,30,000 per year for 12 years
e. Rs.32,000 next year and rising thereafter by 8% per year, forever.
If the interest rate is 12 percent, which prize would you choose?

a) PV = 800000

b) FV = 20,00,000 PV = FV / (1 + i)n =2000000/(1+0.12)^8

n=8 =807766.45
I = 0.12

c) A = 100000 PV = A/ i =100000 / 0.12

n = infinity =833333
d) A = 130000 PVA = A x PVIFA
n = 12 = 130000 x 6.1944
805272

e) A1 = 32000 PVGP = A1 / (i - g )
n = infinity = 32000 / (0.12 - 0.08)
i = 0.12 = 800000
g = 0.08
Rs.8000 at the end of 6 years to investors who deposit annually Rs.1000 for 6 years. What is the interest ra

FVIFA = [(1 + i)n - 1] / i

00 and you can save Rs.50000 to fulfil your desire. How long do you need to wait if the savings earn an in

X = 10.8 years

estimated at Rs.1000000 per year for 4 years when his son becomes 16 years. The expenses will be paya

at end of 15th year

A = 1000000 n=4
I = 0.08

PVA = A (1 + i) x PVIFA(i,n)
= 1000000 (1.08) x 3.3121
= 3577068

every two years. The payments will stretch out over 30 years. The first payment will be received
e present value of the annuity?

n = 15

s. 2500 annually for 6 years. What interest rate do you earn on this deposit?

10000 = 2500 x [1 - 1/(1 + i)^6] / i

I = 0.1298

erest is 12.5 per cent and you can pay Rs.180000 per year towards loan amortisation.

A = 180000

er year, forever.

0/(1+0.12)^8
rs. What is the interest rate implicit in this offer?

if the savings earn an interest of 12 per cent?

e expenses will be payable at the beginning of the years. The interest rate is expected to be 8 per cent ove

ll be received
ected to be 8 per cent over the next two decades. How much money should he deposit over the next 15 ye
eposit over the next 15 years (assume deposit is made at the end of the year) to meet expenses?
meet expenses?
 SIMPLE INTEREST
1. What is the simple interest on amount of Rs. 8000 for 4 yrs at 12% p.a ? What amount wil
2. At what rate of simple interest will 26435 amount to 31722 in 4yrs ?
3. A sum deposited in a bank becomes Rs. 13440 after 5yrs at 12% simple rate of interest. F

COMPOUND INTEREST
4. What sum will amount from Rs. 5000 in 6yrs at 8 ½ % p.a ?
5. Find the compound interest for Rs. 2500 for 15 months at 8% compounded quarterly.
6. Find the PV of Rs. 2000 due in 6yrs if money is worth compounded semi- annually at 5%

PRESENT VALUE
7. Suppose someone promises to give you Rs.1000 three years hence. What is the present
8. A firm invests Rs. 20000 in a project with a life of three years. The projected cash flows
Cash
Years
inflow
1 8000
2 10000
3 9000
The cost of capital 10% p.a. Find out the present value of cashflow individually for each y

FUTURE VALUE
9. If you invest Rs.5000 today at a compound interest of 9 per cent, what will be its future v
10. In what time will Rs. 10,000 amount to Rs. 16105 at 10% per annum interest compounded
11. Find the maturity value of Rs. 100000 deposited with a company for 5yrs at 8.5% compou

PRESENT VALUE & FUTURE VALUE OF ANNUITY

11. Mr. Y is depositing Rs. 8000 annually for 4 yrs in post office savings bank account at an i
12.
Mr. P borrowed loan of Rs. 500000 to construct his bungalow which is repayable in 12 eq
of interest chargeable on this is 4% p.a. compounded. How much of equal annual installm
13. Mr. X is depositing Rs. 2000 p.a. in a recurring bank deposit which pays 9% p.a. compou
14. A machine costs Rs. 300000 and its effective life is expected to be 6yrs. A sinking fund is
its scrap value is expected to realize a sum of Rs. 20000 only. Calculate the amount whic
8% p. a compounded annually .
15. A person is required to pay 4 equal annual payments of Rs. 4000 each in his deposit acc
4yrs.
16. Mr. A plans to send his son abroad for higher studies after 10yrs. He expects the cost of
100000 at the end of 10yrs if the interest rate is 12%
17. ABC ltd has to retire Rs. 1 CR 8% debentures each at the end of 9 and 10yrs from now. H
order to meet the debenture retirement needs.
18. A finance company advertises that it will pay a lump sum of Rs. 14826 at the end who de
You want to take up a trip to the moon which costs Rs.1000000 and you can save Rs.500
19. of 12 per cent?
 PRESENT VALUE OF A GROWING ANNUITY
20. Mr. X has the right to harvest a tea plantation for the next 20yrs. The expected production
The current price per cubic feet of tea is Rs. 500, but it is expected to increase @ 8% per
Find the PV of tea that can be harvested from the tea forest.

ANNUITY DUE
21. The treasurer of ABC Imports expects to invest Rs.50,000 of the firm's funds in a long-ter
expects that the company will earn 6 per cent interest that will compound annually. The p

PRESENT VALUE OF THE PERPETUITY ( PVP)

22. A father has instructed the son to pay every year Rs. 10000 to his mother, so as long as s

PRESENT VALUE OF A GROWING PERPETUITY

23. A father has executed a will in favour of his son with a condition that he should pay Rs. 3
, till the mother remains alive .the interest rate is 10%. Find out the PV of payment stream

DOUBLING PERIOD - RULE 69 & 72

24. An investor finds that he can earn a 20% return on a property investment, and wants to k

LOAN AMORTIZATION SCHEDULE

25. A firm borrows Rs. 10lkh at an interest rate of 15%. It is to be repaid in 5 equal instalmen
show verification step.

EFFECTIVE RATE OF INTEREST

26. A borrower offers 16 per cent nominal rate of interest with quarterly compounding. What
% p.a ? What amount will be received

simple rate of interest. Find the principle amount.

mpounded quarterly.
d semi- annually at 5%

ce. What is the present value of the amount if the interest rate is 10 per cent?
he projected cash flows are:

w individually for each year

what will be its future value after 25 years?

m interest compounded yearly?
or 5yrs at 8.5% compounded semi-annually.

ngs bank account at an interest of 5% p.a. Find the present value of an annuity.
ich is repayable in 12 equal annual installment, the first being paid at the end of 1st year. The rate
of equal annual installment are payable?
ch pays 9% p.a. compounded interest. How much amount MR. X will get at the end of 5th year?
e 6yrs. A sinking fund is created for replacing the machine at the end of its effective lifetime, when
culate the amount which should be provided every year for the sinking fund, if it accumulates at

each in his deposit account that pays 10% per year. Find out the maturity value of annuity at the end of

He expects the cost of studies to be Rs. 100000. How much should he save annually to have a sum of Rs

and 10yrs from now. How much should the company deposit in a sinking fund account annually for 5yrs

4826 at the end who deposit annually Rs.2000 for 6 years. What is the interest rate implicit in this offer?
nd you can save Rs.50000 to fulfil your desire. How long do you need to wait if the savings earn an interes
The expected production is 100000 cubic feet of tea per year.
d to increase @ 8% per year. The discount rate is 15%.

irm's funds in a long-term investment vehicle at the beginning of each year for the next five years. He
mpound annually. The present value OF THESE PAYMENTS WILL BE

mother, so as long as she is alive. Find the PV if the interest rate is 10%.

hat he should pay Rs. 30000 to his mother for the next year. Thereafter it should increase by 5% every ye
e PV of payment stream.

estment, and wants to know how long it will take to double his money?

aid in 5 equal instalments payable at the end of each of the next 5yrs. Determine the annual installment an

rly compounding. What is the effective rate of interest?

st year. The rate

of 5th year?
ve lifetime, when
accumulates at

annuity at the end of

ally to have a sum of Rs.

ccount annually for 5yrs in

e implicit in this offer?

savings earn an interest
e next five years. He

ncrease by 5% every year

he annual installment and

 SIMPLE INTEREST
1. What is the simple interest on amount of Rs. 8000 for 4 yrs at 12% p.a ? What amount wil
P = 8000 n =4 i = 0.12
SI = P x n x i = 8000 x 4 x 0.12 = 3840
A = Amount = P + SI = 8000 + 3840 = 11840

2. At what rate of simple interest will 26435 amount to 31722 in 4yrs ?

P = 26435 A = 31722 n=4
A = Amount = P + SI
= P + (P x n x i)
31722 = 26435 + (26435 x 4 x i)
5287 = 105740 x i 5287 / 105740 = i
i = 0.05 i.e. 5%

3. A sum deposited in a bank becomes Rs. 13440 after 5yrs at 12% simple rate of interest. F
P=? A = 13440 n=5 i = 0.12
A = Amount = P + SI
A = P + (P x n x i) A = P (1 + n x i)
13440 = P (1 + 5 x 0.12)
13440 = P x 1.6
P = 8400

COMPOUND INTEREST
4. What sum will amount from Rs. 5000 in 6yrs at 8 ½ % p.a ?
PV = 5000 n=6 i = 8.5% = 0.085

A = P x (1 + i)n
= 5000 x (1 + 0.085)^6
= 8157.33

5. Find the compound interest for Rs. 2500 for 15 months at 8% compounded quarterly.
PV = 2500 n = 15 months i = 8% = 0.08
n = 1.25 years
n = 1.25 x 4 = 5 I = 0.08/4 = 0.02

A = P x (1 + i)n
= 2500 x (1 + 0.02)^5
= 2760.20

CI = A - P = 2760.20 - 2500 = 260.20

6. Find the PV of Rs. 2000 due in 6 yrs if money is worth compounded semi- annually at 5%
 PV = ? A = 2000 n=6 i = 0.05
n = 12 i = 0.05/2 = 0.025
A = P x (1 + i)n
2000 = P x (1 + 0.025)12
2000 = P x 1.3448
2000 / 1.3448 = P
P = 1487.20

PRESENT VALUE
7. Suppose someone promises to give you Rs.1000 three years hence. What is the present
FV = 1000 n=3 i = 0.10
PV = FV / (1 + i)n PV = FV x PVIF(i,n)
= 1000 / (1 + 0.10)^3 = 1000 x 0.7513
= 751.31 = 751.30

8. A firm invests Rs. 20000 in a project with a life of three years. The projected cash flows
Cash
Years
inflow
1 8000
2 10000
3 9000

The cost of capital 10% p.a. Find out the present value of cashflow individually for each y
I = 0.10
PV = FV / (1 + i)n
PV1 = 8000 / (1.1)^1 = 7273
PV2 = 10000 / (1.1)^2 = 8264 Total PV = 22299
PV3 = 9000 / (1.1)^3 = 6762

As NPV is positive, project sh

FUTURE VALUE
9. If you invest Rs.5000 today at a compound interest of 9 per cent, what will be its future v
PV = 5000 i = 0.09 n = 25

FV = PV x (1 + i)n FV = PV x FVIF(i,n)
= 5000 x (1.09)^25
= 43115.40

10. In what time will Rs. 10,000 amount to Rs. 16105 at 10% per annum interest compounded
n=? PV = 10000 FV = 16105
FV = PV x (1 + i)n
16105 = 10000 x (1.10)^n
1.6105 = 1.10^n
 1.10^5 = 1.10^n n=5

11. Find the maturity value of Rs. 100000 deposited with a company for 5yrs at 8.5% compou

PV = 100000 n=5 i = 0.085

n = 10 i = 0.085/2 = 0.0425
FV = PV x (1 + i)n
= 100000 x (1.0425)^10
= 151621.44

PRESENT VALUE & FUTURE VALUE OF ANNUITY

11. Mr. Y is depositing Rs. 8000 annually for 4 yrs in post office savings bank account at an i
A - 8000 n=4 I = 0.05
PVA = A x PVIFA(i,n) PVIFA = [1 - 1/(1 + i)n] / i
= 8000 x 3.546
= 28368

12.
Mr. P borrowed loan of Rs. 500000 to construct his bungalow which is repayable in 12 eq
interest chargeable on this is 4% p.a. compounded. How much of equal annual installme
PV = 500000 n = 12 I = 0.04 A=?

PVA = A x PVIFA(i,n) PVIFA = [1 - 1/(1 + i)n] / i

500000 = A x 9.3851
A = 53275. 93

13. Mr. X is depositing Rs. 2000 p.a. in a recurring bank deposit which pays 9% p.a. compou
A = 2000 n=5 I = 0.09

FVA = A x FVIFA(i,n)
= 2000 x 5.9847
= 11969.4

14. A machine costs Rs. 300000 and its effective life is expected to be 6yrs. A sinking fund is
scrap value is expected to realize a sum of Rs. 20000 only. Calculate the amount which s
compounded annually .
Cost of Machine = 300000 Scrap Value = 20000
Amount required to buy the machine after 6 years = 300000 - 20000 = 280000
 FV = 280000 n=6 i = 0.08
FVA = A x FVIFA(i,n)
280000 = A x 7.3359 FVIFA = [(1 + i)n - 1] / i
A = 38168.45

15.
A person is required to pay 4 equal annual payments of Rs. 4000 each in his deposit acc

FV = ??? A = 4000 I = 0.1 n=4

FVA = A x FVIFA(i,n)
FVA = 4000 x 4.6410
18564

16. Mr. A plans to send his son abroad for higher studies after 10yrs. He expects the cost of
the end of 10yrs if the interest rate is 12%
FV = 100000 n = 10
FVA = A x FVIFA(i,n)

5698.33039

17. ABC ltd has to retire Rs. 1 CR 8% debentures each at the end of 9 and 10yrs from now. H
meet the debenture retirement needs.

9th year = 1,00,00,000

10th year = 1,00,00,000
A=?
FV5 = 1,41,56,130 FVA = A x FVIFA(i,n)
n=5 1,41,56,130 = A x 5.8666
I = 0.08 A = 2413004

18. A finance company advertises that it will pay a lump sum of Rs. 14826 at the end who de
FV = 14826 A = 2000 n=6 i=?
FVA = A x FVIFA(i,n) FVIFA = [(1 + i)n - 1] / i
14826 = 2000 x [(1 + i)6 -1] / i
I = 0.0841 i.e. = 8.41%
19. You want to take up a trip to the moon which costs Rs.1000000 and you can save Rs.500
cent?
FV = 1000000 A = 50000 i = 0.12 n=?

FVA = A x FVIFA(i,n) FVIFA = [(1 + i)n - 1] / i

1000000 = 50000 x [(1 + 0.12) n -1] / 0.12
20 = [(1 + 0.12)n -1] / 0.12 n = 10.80 years
2.4 = 1.12^n - 1 3.4 = 1.12^n

PRESENT VALUE OF A GROWING ANNUITY

20. Mr. X has the right to harvest a tea plantation for the next 20yrs. The expected production
The current price per cubic feet of tea is Rs. 500, but it is expected to increase @ 8% per
Find the PV of tea that can be harvested from the tea forest.
n = 20 A1 = 100000 x 500 = 50000000 g = 0.08

PVGA = A (1 + g) * [[1 - (1 + g)n/(1 + i)n]/(i - g)]

= 50000000 (1 + 0.08) x [[1 - (1 + 0.08) 20/(1 + 0.15)20]/(0.15 - 0.08)]
= 551736682.75

ANNUITY DUE (If at the beginning of the period)

21. The treasurer of ABC Imports expects to invest Rs.50,000 of the firm's funds in a long-ter
the company will earn 6 per cent interest that will compound annually. The present value
A = 50000 n=5 i = 0.06
PVA = A (1 + i) x PVIFA(i,n)
= 50000 (1 + 0.06) x 4.2124
= 223257.2

PRESENT VALUE OF THE PERPETUITY ( PVP)

22. A father has instructed the son to pay every year Rs. 10000 to his mother, so as long as s

A' = X = 10000 i = 0.10

PVP = A' / i or PVP = X / i A' = X = Constant Annual payme
= 10000 / 0.1
= 100000

PRESENT VALUE OF A GROWING PERPETUITY

23. A father has executed a will in favour of his son with a condition that he should pay Rs. 3
mother remains alive .the interest rate is 10%. Find out the PV of payment stream.

A1 = 30000 g = 5% = 0.05
PVGP = A1 / (i - g) A1 = First Payment
= 30000 / (0.10 - 0.05)
= 600000
 DOUBLING PERIOD - RULE 69 & 72
24. An investor finds that he can earn a 20% return on a property investment, and wants to k
R = 20
Rule 72 = 72 / R Rule 69 = 0.35 + 69 / R
= 72 / 20 = 0.35 + 69/20
= 3.6 years = 3.8 years

LOAN AMORTIZATION SCHEDULE

25. A firm borrows Rs. 10lkh at an interest rate of 15%. It is to be repaid in 5 equal instalmen
verification step.

PV = 1000000 I = 0.15 n=5

PVA = A x PVIFA(i,n) PVIFA = [1 - 1/(1 + i)n] / i

1000000 = A x 3.3522
A = 298312

LOAN AMORTISATION SCHEDULE

Opening Annual Principal

Year Balance Instalment Interest repayment
1 1,000,000 298,312 150,000 148,312
2 851,688 298,312 127,753 170,559
3 681,129 298,312 102,169 196,143
4 484,987 298,312 72,748 225,564
5 259,423 298,312 38,889 259,423
Total 1,491,560 491,560 1,000,000

26. EFFECTIVE RATE OF INTEREST

A borrower offers 16 per cent nominal rate of interest with quarterly compounding. What

I = 0.16 m=4 m = number of periods per year

Effective Rate of Interest = (1 + I / m)m -1

= (1 + 0.16/4)^4 - 1
= 0.16985
= 16.985 %

STARTED TODAY I.E. 2ND AUGUST 2022

PAST 2 PAPERS
Q.3 Past Paper

Cash
Years
inflow PVIF @ 5% PV
1 2000 0.9524 1904.8
2 3000 0.907 2721
3 4000 0.8638 3455.2
4 5000 0.8227 4113.5
5 6000 0.7835 4701
total PV 16895.5

Q.4 a) PV = 5,00,000

b) A = 1,50,000 n = 10 Years I = 0.10

PVA = A x PVIFA(i,n)

PVA = A x [(1 + i)n - 1] / i (1 + i)n

= 1,50,000 x 6.1446
= 9,21,685

c) FV = 18,00,000 n = 10 Years I = 0.10

PV = FV / (1 + i)^n
= 18,00,000 / 1.10^10
= 693977

d) Perpetuity (A') = 100000

PVP = A' / i
= 100000 / 0.1
= 10,00,000

As PV of option d is highest, Mr. Aaksh should chose option d

Q.5) A = 70000 per year starting at the end of 5th Year for a period of 10 Years

n = 10 for an Annuity n is always equal to number of annuities

I = 0.16
NOTE - In case of ordinary annuity when we calculate PV, the value we get is

PVA = A x PVIFA(i,n) PVA = A x [(1 + i)n - 1] / i (1 + i)

= 70000 x 4.8332 338324 is the value at the end of 4th Year

we can say it is FV = 338324 n=4 i =0.16

 PV = FV / (1 + i)^n
= 338324 / (1.16)^4
186853.33

Q.1 a i) FV = 12000 n=1 i =0.2

PV = FV / (1 + i)^n
= 12000 / (1.2)^1 = 10,000

i) FV = 18000 n=4 i =0.2

PV = FV / (1 + i)^n
= 18000 / (1.2)^4 = 8680.56

b) PV = 10,00,000 n=3 i =0.08

Compounding Quaterly
n = 3 x 4 = 12
i =0.08/4 = 0.02

i) FV = PV x (1 + i)^n
= 10,00,000 x (1.02)^12
= 12,68,241.80

ii) Effective Rate of Interest = (1 + i/m)m -1

= (1 + 0.08/4)^4 - 1
= 0.0824
= 8.24%

Q.3 PV = 30,00,000 I = 0.125 n=5

PVA = A x PVIFA(i,n) PVIFA = [1 - 1/(1 + i)n] / i

3000000 = A x 3.5606 PVIFA = [(1 + i)n - 1] / i (1 + i)n
A = 842555

LOAN AMORTISATION SCHEDULE

Opening Annual Principal
Year Balance Instalment Interest repayment
1 3,000,000 842,555 375,000 467,555
2 2,532,445 842,555 316,556 525,999
3 2,006,446 842,555 250,806 591,749
4 1,414,696 842,555 176,837 665,718
5 748,978 842,555 93,622 748,933
Total 4,212,775 1,212,821 2,999,954
Q.4 FV = FACE VALUE OF BOND = 100
C = COUPON RATE = 10% = 0.10 semi annually
n = No. of years to maturity = 5 Years
r = Discount rate = 14% = 0.14
As it is semi-annualy
r = 0.14/2 = 0.07
n = 5 x 2 = 10
C = 0.10 / 2 = 0.05

I = Interest = FV x C = 100 x 0.05 = 5

M = Maturity Value = 100 (If maturity value is not given in the question

Value of Bond / Price of Bond (V) = I x PVIFA(r,n) + M / (1 + r)^n

= 5 x 7.0236 + 100/1.07^10
= 85.95
= approx Rs. 86
2% p.a ? What amount will be received

i = ??

% simple rate of interest. Find the principle amount.

ompounded quarterly.

Compunded
Half Yearly i/2 nx2
quaterly i/4 nx4
monthly i/12 n x 12

ded semi- annually at 5%

ence. What is the present value of the amount if the interest rate is 10 per cent?

The projected cash flows are:

Cash PVIF @
Years
inflow 10% PV
1 8000 0.9091 7272.8
2 10000 0.8264 8264
3 9000 0.7513 6761.7
22298.5
ow individually for each year Advise about the project

Net Present Value = PV of Cash Inflows - Investment

= 22299 - 20000
= 2299
NPV is positive, project should be accepted

t, what will be its future value after 25 years?

num interest compounded yearly?

i = 0.1
y for 5yrs at 8.5% compounded semi-annually.

vings bank account at an interest of 5% p.a. Find the present value of an annuity.

PVIFA = [(1 + i)n - 1] / [i (1 + i)n]

which is repayable in 12 equal annual installment, the first being paid at the end of 1st year. The rate of
of equal annual installment are payable?

hich pays 9% p.a. compounded interest. How much amount MR. X will get at the end of 5th year?

FVIFA = [(1 + i)n - 1] / i

be 6yrs. A sinking fund is created for replacing the machine at the end of its effective lifetime, when its
ulate the amount which should be provided every year for the sinking fund, if it accumulates at 8% p. a

= 300000 - 20000 = 280000

 A = ??

FA = [(1 + i)n - 1] / i

0 each in his deposit account that pays 10% per year. Find out the maturity value of annuity at the end of

16241.604

s. He expects the cost of studies to be Rs. 100000. How much should he save annually to have a sum of R

I = 0.12 A = ??

f 9 and 10yrs from now. How much should the company deposit in a sinking fund account annually for 5yr

PV = FV / (1+i)^n
FV9 PV5 = 1,00,00,000 / (1.08)^4 = 7350299
FV10 PV5 = 1,00,00,000 / (1.08)^5 = 6805831
= 14156130

14826 at the end who deposit annually Rs.2000 for 6 years. What is the interest rate implicit in this offer?

7.413
 and you can save Rs.50000 to fulfil your desire. How long do you need to wait if the savings earn an inter

. The expected production is 100000 cubic feet of tea per year.

ted to increase @ 8% per year. The discount rate is 15%.

i = 0.15

0.15 - 0.08)]

e firm's funds in a long-term investment vehicle at the beginning of each year for the next five years. He ex
nually. The present value OF THESE PAYMENTS WILL BE

is mother, so as long as she is alive. Find the PV if the interest rate is 10%.

X = Constant Annual payment forever

n that he should pay Rs. 30000 to his mother for the next year. Thereafter it should increase by 5% every
of payment stream.

i = 0.10
nvestment, and wants to know how long it will take to double his money?

paid in 5 equal instalments payable at the end of each of the next 5yrs. Determine the annual installment a

Closing
Balance
851,688 Interest = Op balance x i
681,129 Principal payment = Annual instalment - Interest
484,987 Closing Balance = op bal - principal repayment
259,423
0
0

terly compounding. What is the effective rate of interest?

For Semi Annually m = 2

For Quaterly m = 4
For monthly m = 12
 PVIF = 1 / (1 + i)n

period of 10 Years

of annuities

ate PV, the value we get is 1 year before the first annuity started.

= A x [(1 + i)n - 1] / i (1 + i)n

e end of 4th Year
 i) FV = 12000 n=1 i =0.2
PV = 12000 n=3 i =0.2

FV = 12000 x (1.2)^3
= 20736

Compunded
Half Yearly i/2 nx2
quaterly i/4 nx4
monthly i/12 n x 12

m = number of periods per year

FA = [1 - 1/(1 + i)n] / i
FA = [(1 + i)n - 1] / i (1 + i)n

Closing
Balance
2,532,445 Interest = Op balance x i
2,006,446 Principal payment = Annual instalment - Interest
1,414,696 Closing Balance = op bal - principal repayment
748,978
46 effect of round off
 is not given in the question then M is equal to FV)

+ M / (1 + r)^n
00/1.07^10
t year. The rate of

of 5th year?

ve lifetime, when its

umulates at 8% p. a
annuity at the end of 4yrs.

lly to have a sum of Rs. 100000 at

count annually for 5yrs in order to

implicit in this offer?

savings earn an interest of 12 per

next five years. He expects that

ncrease by 5% every year , till the

e annual installment and show
 A firm borrows Rs. 10lkh at an interest rate of 15%. It is to be repaid in 5 equal inst
25.
show verification step.

PV = 1000000 I = 0.15 n=5

PVA = A x PVIFA(i,n) PVIFA = [1 - 1/(1 + i)n] / i

1000000 = A x 3.3522
A = 298312

LOAN AMORTISATION SCHEDULE

Opening Annual Principal

Year Balance Instalment Interest payment
1 1,000,000 298,312 150,000 148,312
2 851,688 298,312 127,753 170,559
3 681,129 298,312 102,169 196,143
4 484,987 298,312 72,748 225,564
5 259,423 298,312 38,913 259,399
repaid in 5 equal instalments payable at the end of each of the next 5yrs. Determine the annual installment a

0.15

Closing
Balance
851,688 Interest = Op balance x i
681,129 Principal payment = Annual instalment - Interest
484,987 Closing Balance = op bal - principal repayment
259,423
24 effect of round off
0
annual installment and