Assignment 2: Time Value of Money
1) Suppose that the 100000 are placed in the saving account of a bank at 5% interest rate.
How much shall it grow at the end of three years
!) "akesh has invested !00000 in a bank certificate of deposit for ! years at #% interest.
How much will he receive on maturity
$) %anan bought a share 15 years ago for 10. &t is now selling for 10. &t is now selling
for !'.(0. )hat is the compound growth rate in the price of the share
*) Shashikant deposits $00000 with a bank which pays 10 percent interest compounded
annually+ for $ years. How much amount he would get at maturity
5) Suppose you deposit 100000 today in bank which pays you 10 % interest compounded
annually+ how much your deposit will grow to after # years and 1! years
() ,imi deposited each year 5000+ 10000+ 15000+ !5000 in his saving bank account
for 5 years. -he interest rate is 5%+ He wishes to find the future value of deposit at the
end of 5 years.
') .eera has been given an /pportunity to receive 1+00+(00 one year from now. He knows
that he can earn (% interest on his investment. )hat amount will he be prepared to invest
for this opportunity.
#) 0ind the 1. of !+00+000 receivable ( years hence if the rate of interest is 10 per cent.
2) "a3endra wants to find the present value of !000 to be received 5 years from now+
assuming 10% rate of interest.
10) %r. Shah has invested 5+00+000 on 4ero5 machine on 1.1.!01!. He estimates net cash
income from 4ero5 machine in ne5t five years as under.
Year Estimated inflows
!01! 1+!0+000
!01$ • 1+50+000
!01* • 1+50+000
!015 • !+50+000
!01( • $+00+000
6alculate present value of all cash inflows.
11) %r. 4 deposited !0000 at the end of every year for 5 years in his saving account paying
5 % interest compounded annually. He wants to determine how much sum of money he
will have at the end of the 5
th
year.
Time value of Money Page 2
1!) 0our e7ual annual payments of 50+000 are made into a recurring deposit account that
pays # per cent interest per year. )hat is the future value of this annuity at the end of four
years.
1$) 8 bank advertises that it will pay a lump sum of *5'*0 at the end of # years to investors
who deposit annually *000 for # years. )hat is the rate of interest rate bank is paying
1*) 9ou can save !0000 a year for 5 years and $0000a year thereafter for 10 years. )hat
will these savings accumulate at the end of 15 years if the rate of interest is 10%
15) Suppose you e5pect to receive 1000 annually for $ years+ each receipt occurring at the
end of the year. )hat is the present value of this stream of benefit if the discount rate is
10%.
1() 8:6 co. e5pects to receive 100000 for a period of 10 years from a new proposal it has
3ust undertaken. 8ssuming a 10% rate of interest+ how much would be present value of
this annuity.
1') ;etermine the present value of annuity consisting of cash inflow of 10000 per yr for 5
years.
1#) 1 ltd. has generated 1.50 crore from the sale of one of its manufacturing units. -he
company has an option to invest the money for 5 years in an investment avenue that will
give an assured compounded return of 11.5%. /n the maturity of investment at the end of
5
th
year +the firm can invest the money in proposed e5pansion plan that are pro3ected to
cost 5 crore .&f the firm decides to go ahead with the investments +how much e5tra
financing will be needed at the end of 5
th
year to finance its e5pansion plans.
12) 8 limited company borrows from a commercial bank 10+00+000 at 1!% rate of interest
to be paid in e7ual annual end of year installments. )hat would be the siinterest and principal).
-he rate of interest is 1(%. 6ompute the amount of each payment.
Time value of Money Page 2
Time Value of Money
1. 8lpha ?td has a surplus of !0 lacks available for the ne5t 5 years. 8t the end of the
period the firm will need the amount for investing in its business e5pansion. &f the
firm decided to invest the surplus in a scheme that offers a 1$% per annum+ how
much would the amount grow to at the end of 5 years
!. 8n investor is thinking of investing in a recurring deposit scheme that offers an
interest rate of 1!% per annum. -he investment that he is planning is for the higher
education of his son who is 3ust two years now. &n case the investor decides to invest
!0+000 every year+ what will be the total money available to him when his son
reaches the age of !0 years
$. 9our father has promised to give you 1+00+000 in cash on your !5
th
:irthday -oday
is your 1(
th
birthday .He wants to know two things@ >a) &f he decides to make annual
payments into fund after one year +how much will each have to be if the fund pays
#%.>b) &f he decides to invest a lump sum in the account after one year and let it
compound annually+ how much will the lump sum be
*. 8 company has issued debentures of "s.50 laks to be repaid after ' years .How much
should the company invest in a sinking fund earning 1!% in order to be able to repay
debentures
5. 8 company offers to refund an amount of **(50 at the end of 5 years for a deposit of
(000 made annually. 0ind out the implicit rate offered by the company.
(. 8ssume that a !0+00+000 plant e5pansion is to be financed as follows@ -he firm makes a
15% down payment and borrows the remainder at 2% interest rate .-he loan is to repaid
in # e7ual installments beginning * years from now. )hat is the sia) to receive interest at 1!% p.a. compounded monthly or >b) to receive interest
at 1!.!5% p.a. compounded halfDyearly. )hich option should be accepted
Time value of Money Page 2
doc_775860385.docx
1) Suppose that the 100000 are placed in the saving account of a bank at 5% interest rate.
How much shall it grow at the end of three years
!) "akesh has invested !00000 in a bank certificate of deposit for ! years at #% interest.
How much will he receive on maturity
$) %anan bought a share 15 years ago for 10. &t is now selling for 10. &t is now selling
for !'.(0. )hat is the compound growth rate in the price of the share
*) Shashikant deposits $00000 with a bank which pays 10 percent interest compounded
annually+ for $ years. How much amount he would get at maturity
5) Suppose you deposit 100000 today in bank which pays you 10 % interest compounded
annually+ how much your deposit will grow to after # years and 1! years
() ,imi deposited each year 5000+ 10000+ 15000+ !5000 in his saving bank account
for 5 years. -he interest rate is 5%+ He wishes to find the future value of deposit at the
end of 5 years.
') .eera has been given an /pportunity to receive 1+00+(00 one year from now. He knows
that he can earn (% interest on his investment. )hat amount will he be prepared to invest
for this opportunity.
#) 0ind the 1. of !+00+000 receivable ( years hence if the rate of interest is 10 per cent.
2) "a3endra wants to find the present value of !000 to be received 5 years from now+
assuming 10% rate of interest.
10) %r. Shah has invested 5+00+000 on 4ero5 machine on 1.1.!01!. He estimates net cash
income from 4ero5 machine in ne5t five years as under.
Year Estimated inflows
!01! 1+!0+000
!01$ • 1+50+000
!01* • 1+50+000
!015 • !+50+000
!01( • $+00+000
6alculate present value of all cash inflows.
11) %r. 4 deposited !0000 at the end of every year for 5 years in his saving account paying
5 % interest compounded annually. He wants to determine how much sum of money he
will have at the end of the 5
th
year.
Time value of Money Page 2
1!) 0our e7ual annual payments of 50+000 are made into a recurring deposit account that
pays # per cent interest per year. )hat is the future value of this annuity at the end of four
years.
1$) 8 bank advertises that it will pay a lump sum of *5'*0 at the end of # years to investors
who deposit annually *000 for # years. )hat is the rate of interest rate bank is paying
1*) 9ou can save !0000 a year for 5 years and $0000a year thereafter for 10 years. )hat
will these savings accumulate at the end of 15 years if the rate of interest is 10%
15) Suppose you e5pect to receive 1000 annually for $ years+ each receipt occurring at the
end of the year. )hat is the present value of this stream of benefit if the discount rate is
10%.
1() 8:6 co. e5pects to receive 100000 for a period of 10 years from a new proposal it has
3ust undertaken. 8ssuming a 10% rate of interest+ how much would be present value of
this annuity.
1') ;etermine the present value of annuity consisting of cash inflow of 10000 per yr for 5
years.
1#) 1 ltd. has generated 1.50 crore from the sale of one of its manufacturing units. -he
company has an option to invest the money for 5 years in an investment avenue that will
give an assured compounded return of 11.5%. /n the maturity of investment at the end of
5
th
year +the firm can invest the money in proposed e5pansion plan that are pro3ected to
cost 5 crore .&f the firm decides to go ahead with the investments +how much e5tra
financing will be needed at the end of 5
th
year to finance its e5pansion plans.
12) 8 limited company borrows from a commercial bank 10+00+000 at 1!% rate of interest
to be paid in e7ual annual end of year installments. )hat would be the siinterest and principal).
-he rate of interest is 1(%. 6ompute the amount of each payment.
Time value of Money Page 2
Time Value of Money
1. 8lpha ?td has a surplus of !0 lacks available for the ne5t 5 years. 8t the end of the
period the firm will need the amount for investing in its business e5pansion. &f the
firm decided to invest the surplus in a scheme that offers a 1$% per annum+ how
much would the amount grow to at the end of 5 years
!. 8n investor is thinking of investing in a recurring deposit scheme that offers an
interest rate of 1!% per annum. -he investment that he is planning is for the higher
education of his son who is 3ust two years now. &n case the investor decides to invest
!0+000 every year+ what will be the total money available to him when his son
reaches the age of !0 years
$. 9our father has promised to give you 1+00+000 in cash on your !5
th
:irthday -oday
is your 1(
th
birthday .He wants to know two things@ >a) &f he decides to make annual
payments into fund after one year +how much will each have to be if the fund pays
#%.>b) &f he decides to invest a lump sum in the account after one year and let it
compound annually+ how much will the lump sum be
*. 8 company has issued debentures of "s.50 laks to be repaid after ' years .How much
should the company invest in a sinking fund earning 1!% in order to be able to repay
debentures
5. 8 company offers to refund an amount of **(50 at the end of 5 years for a deposit of
(000 made annually. 0ind out the implicit rate offered by the company.
(. 8ssume that a !0+00+000 plant e5pansion is to be financed as follows@ -he firm makes a
15% down payment and borrows the remainder at 2% interest rate .-he loan is to repaid
in # e7ual installments beginning * years from now. )hat is the sia) to receive interest at 1!% p.a. compounded monthly or >b) to receive interest
at 1!.!5% p.a. compounded halfDyearly. )hich option should be accepted
Time value of Money Page 2
doc_775860385.docx