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Assignment on Time Value of Money

1. If you deposit Rs 5000 today at 12% rate of interest, in how many years will this amountgrow to Rs 1, 60,000? Use rule of 72. (PC 6.2)

2. You can save Rs 2000 a year for 5 years, and Rs 3000 a year for 10 years thereafter.What will these savings cumulate to at the end of 15 years, if the rate of interest is 10%?

(PC 6.4)

3. Mr. Vinay plans to send his son for higher studies abroad after 10 years. He expects thecost of these studies to be Rs 100,000. How much should he save annually to have a sum

of Rs 100,000 at the end of 10 years, if the interest rate is 12%? (PC 6.5)

4. Someone promises to give you Rs 5000 after 10 years in exchange for Rs 1000 today.What interest is implicit in this offer? (PC 6.7)

5. Mr. X deposits Rs 100,000 in a bank which pays 10% interest. How much can hewithdraw annually for a period of 30 years? Assume that at the end of 30 years the

amount deposited will whittle down to zero. PC 6.11

6. What amount should be deposited today in order to earn annual income of Rs 5000beginning from the end of 15 years from now? The deposit earns 10% per year. PC 6.14

7. Suppose you deposit Rs 10,000 with an investment company which pays 16% interestwith quarterly compounding. How much will this deposit grow in 5 years? PC 6.17

8. How much should be deposited at the beginning of each year for 10 years in order toprovide a sum of Rs 50,000 at the end of 10 years? PC 6.23

9. What is the present value of Rs 2000 receivable annually for 30 years, the first receiptoccurs after 10 years? The discount rate is 10%. PC 6.25

10.South India Corporation has to retire Rs 10 million of debentures each at the end of 8, 9and 10 years from now. How much should the firm deposit in a sinking fund account

annually for 5 years, in order to meet the debenture retirement need? The net interest rate

earned is 8 %. PC 6.2811.Phoenix Company borrows Rs 500,000 at an interest rate of 14%. The loan is to be repaid

in 4 equal installments payable at the end of each of the next 4 years. Prepare loan

amortization schedule. PC 6.30

12.You plan to buy a flat for Rs 200,000 by making Rs 40,000 down payment. A housefinancing company offers you a 12 year mortgage requiring end-of-year payments of Rs

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28,593. The company also wants you to pay Rs 5000 as loan processing fee, which they

will deduct from the amount of loan given to you. What is the rate of interest on loan?

IMP 20.

13.Exactly 20 years from now Mr Ahmed will start receiving a pension of Rs 10,000 a year.The payment will continue for twenty years. How much is the pension worth now,

assuming money is worth 15% per year? IMP 9

14.You are planning to buy a 200 square meters of land for Rs 40,000. You will be requiredto pay twenty equal installments of Rs 8,213. What compound rate of interest you will be

paying? IMP 15

15.(a) At the age 20, how much should one invest at the end of each year in order to have Rs10 lakh at the age of 50, assuming 10% annual growth rate? (b) At age 20, how much

lump sum should one invest in order to have Rs 10 lakh at the age of 50, assuming 10%

annual growth rate? IMP 17

16.Mr. Warren Buffet, the second richest man in the world, in June 2006 decided to donate85% of his $44 billion fortune to Bill & Meldina Gates foundation in installments of $1.5

billion every year. Mr. Buffet stipulated that the annual payments must be distributed to

the beneficiaries within a year before the subsequent payment is made. If Mr. Buffet did

not stipulate the condition and instead, Gates Foundation decided to invest the annual

contribution at 8% and spend the aggregate sum only upon receiving the entire

contribution promised, what amount will the foundation have at the end?