Determine the future values utilizing a time preference rate of 9% when:(1)The future value of Rs 15,000 invested now for a period of 4 years.(2)The future value at the end of 5 years of an investment of Rs 6,000 now and of an investment of Rs 6,000 one year from now.(3)The future value at the end of 8 years of an annual deposit of Rs 18,000 each year.(4)The future value at the end of 8 years of annual deposit of Rs 18,000 at the beginning of each year.(5)The future values at the end of 8 years of a deposit of Rs 18,000 at the end of the first 4 years and end of year 5 through 7.

Solution:1 PV = -15000 2

N = 4I = 9%Total = Rs. 21,173.72

3 PV = -18000N = 8I=

4 A = -18000 5N = 8I = 9%

FVA = A[(1+I)^N-1/R]35855.0164393

(2)The future value at the end of 5 years of an investment of Rs 6,000 now and of an investment of Rs 6,000 one year from now.(3)The future value at the end of 8 years of an annual deposit of Rs 18,000 each year.(4)The future value at the end of 8 years of annual deposit of Rs 18,000 at the beginning of each year.

at the end of 8 years of a deposit of Rs 18,000 at the end of the first 4 years and withdrawal of Rs 12,000 per year at the

PV = -6000N = 5I = 9%Total = Rs. 9,231.74

PV = -6000N = 4I = 9%

Rs. 8,469.49

A= -18000N = 4I = 9%

FVA = A[(1+I)^N-1/R]25397.3578688889

A = -12000N = 5I = 9%

FVA = A[1+I)^N-1/R]18452.3763476889

withdrawal of Rs 12,000 per year at the

Compute the present value of each of the following cash flows using a discount rate of 13%:(1)Rs 2,000 cash outflow immediately (5)Rs 7,000 cash inflow 3 years from now(2)Rs 6,000 cash inflow 1 year from now (6)Rs 3,000 cash inflow 4 years from now(3)Rs 6,000 cash inflow 2 years from now (7)Rs 4,000 cash inflow at the end of each of the next 5 years(4)Rs 4,000 cash outflow 3 years from now (8)Rs 4,000 cash inflow at the beginning of each of the next 5 years

Solution:

As the outflow is immediately the PV would the cash outflow itself i.e., Rs 2000

(3) Amount 6000interest 13%year 2

Rs. -4,698.88

Amount 6000Interest 13% (4) Amount -4000year 1 Interest 13%

Rs. -5,309.73 Year 3Rs. 2,772.20

(7)Rs 4,000 cash inflow at the end of each of the next 5 years(8)Rs 4,000 cash inflow at the beginning of each of the next 5 years

(5) Amount 7000 (7) Amount 4000Interest 13% Interest 13%Year 3 Year 5

Rs. -4,851.35 Rs. -2,171.04

(6) Amount 3000Interest 13% (8) Amount 4000Year 4 Interest 13%

Rs. -1,839.96 Year 5Rs. -2,171.04

Determine the present value of the cash inflows of Rs 3,000 at the end of each year for next 4 years and Rs 7,000 and Rs 1,000 respectively,at the end of 5 and 6. The appropriate discount rate is 14%.

Solution:

A = 3000 A = 7000I = 14% N = 5 N = 4 I = 13%

Rs. -8,741.14 Rs. -3,799.32

at the end of each year for next 4 years and Rs 7,000 and Rs 1,000 respectively,

A = 1000N = 6I = 13%

Rs. -480.32

Assume an annual rate of interest of 15%. The sum of Rs 100 received immediately is equivalent to what quantity received in ten equal annual payments,the first payment to be received one year from now?What could be the annual amount if the first payment were received immediately?

Solution:

Years (1+r) Answer0.15 100 10 2030.3718 1.15 2334.9276

Annual rate of Interest

Present value

Future Value

The sum of Rs 100 received immediately is equivalent to what quantity received in ten equal annual payments,payment to be received one year from now?What could be the annual amount if the first payment were received immediately?

Assume a rate of interest of 10%.We have a debt to pay and are given a choice of paying Rs 1,000 now or some amount X five years from now.What is the maximum amount that X can be for us to be willing to defer payment for five years?

Solution:

Fv = pv(((1+r)^n) - 1)/r1000((1.1^5) -1)/r Answer Rs.6105.1

Assume a rate of interest of 10%.We have a debt to pay and are given a choice of paying Rs 1,000 now or some amount X five years from now.

We can make an immediate payment now of Rs 13,000 or pay equal amount of A for the next 5 years,first payment being payable after 1 year.(a)With a time value of money of 12% ,what is the maximum value of A that we would be willing to accept? (b)What maximum value of A we would be willing to accept if the payments are made in the beginning of the year?

Solution:

fv = a((1+r)^n - 1)/r pv = A ((1-(1/1+r)^n)/r)13000((1.12)^5 - 1 / .12) 13000 = A (1 -(1/ 1.12)^5 ) / .12

82587.01 A = 3606.326515A*5 = 18031.632A for five years= 18031.632A if it is beginning = (1+r) AAnswer 4039.0847

20195.424A for five years

We can make an immediate payment now of Rs 13,000 or pay equal amount of A for the next 5 years,first payment being payable after 1 year.(a)With a time value of money of 12% ,what is the maximum value of A that we would be willing to accept? (b)What maximum value of A we would be

Assume that you are given a choice between incurring an immediate outlay of Rs 10,000 and having to pay Rs 2,310 a year for 5 years (first payment dueone year from now);the discount rate is 11%.What would be your choice?Will your answer change if Rs 2,310 is paid in the beginning of each year for5 years?

Solution:

Pv = A(1-(1/(1+r)^n)/r)2310(1-(1/1.11^5))/.118537.5221which is less than 10000, hence prefereable amount is 2310

If paid in the beginning of each year then (1+r) PV9476.6495which is less than 10000, hence preferred

Assume that you are given a choice between incurring an immediate outlay of Rs 10,000 and having to pay Rs 2,310 a year for 5 years (first payment dueone year from now);the discount rate is 11%.What would be your choice?Will your answer change if Rs 2,310 is paid in the beginning of each year for

Compute the present value for a bond that promises to pay interest of Rs 150 a year for thirty years and Rs 1,000 at maturity.The first interest payment is paid one year from now.Use a rate of discount at 8%.

Solution:

A= 150N= 30I= 8%

PV= A*(1+I)^N1509.3985

Compute the present value for a bond that promises to pay interest of Rs 150 a year for thirty years and Rs 1,000 at maturity.The first interest payment is

Exactly twenty 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 pensionworth now,assuming money is worth 15% per year?

Solution:

I = 15%N= 20FV = 10,000

PVA A*1-1/(1+I)^N/I9999.5927

Exactly twenty 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 pension

Using an interest rate of 10% ,determine the present value of the following cash flow series:End of period Cash flow(Rs)

0 -10,0001-6 (each period) 2,000

7 -1,5008 1,600

9-12(each period) 2,500

Solution:

1 A = -10,000 2 A= 2000I = 10% N= 1N= 0 I= 10%

Rs. 10,000.00 Rs. -1,818.18

A= 2000N= 5I= 10%

Rs. -1,241.84

3 A= -1500 4N= 7I= 10%

Rs. 769.74

5 A= 2500 A=N= 9 N=I= 10% I=

Rs. -1,060.24

A= 2000 A= 2000N= 2 N= 3I= 10% I= 10%

Rs. -1,652.89 Rs. -1,502.63

A= 2000N= 6I= 10%

Rs. -1,128.95

A= 1600N= 8I= 10%

Rs. -746.41

2500 A= 2500 A= 250010 N= 11 N= 12

10% I= 10% I= 10%Rs. -963.86 Rs. -876.23 Rs. -796.58

A= 2000N= 4I= 10%

Rs. -1,366.03

Find the rate of return in the following cases: (1)You deposit Rs 100 and would receive Rs 114 after one year.(2)You borrow Rs 100 and promise to pay Rs 112 after one year. (3)You borrow Rs 1,000 and promise to pay Rs 3,395 at the end of 10 years(4)You borrow Rs 10,000 and promise to pay Rs 2,571 each year for 5 years.

Solution:1 PV= 100

FV= 114N= 1

Rate of interest = FV-PV/PV14

2 PV= 100FV= 112N= 1Rate of interest= FV-PV/PV*100

12

3 PV= 1000FV= 3395N= 10

Rate of Interest = 2.83%

4 pv = a(1-(1/1+r)^n)/r0.906497

90.65%

(1)You deposit Rs 100 and would receive Rs 114 after one year.(3)You borrow Rs 1,000 and promise to pay Rs 3,395 at the end of 10 years

A bank has offered a deposit scheme , which will triple your money in 9 years;that is ,if you deposit Rs 100 today,you can receive Rs 300 at the end of 9 years.What rate of return would you earn from the scheme?

Solution:

fv=pv(1+r)^n300 = 100(1+r)^9r = 1.396

A bank has offered a deposit scheme , which will triple your money in 9 years;that is ,if you deposit Rs 100 today,you can receive Rs 300 at the end of 9 years.

You have Rs 6,000 to invest.How much would it take you to double your money if the interest rate is (a)6% (b)10% (c)20% and (d)30%?Assume annualcompounding .Would your answer change if compunding is done half-yearly?Show computations.

Solution:

a PV= 6000 b A= 6000I= 6% I= 10%N= 2 N= 2

FV= A*(1+I)^N FV= A*(1+I)^N6741.6 7260

You have Rs 6,000 to invest.How much would it take you to double your money if the interest rate is (a)6% (b)10% (c)20% and (d)30%?Assume annual

c A= 6000 d A= 6000I= 20% I= 30%N= 2 N= 2

FV= A*(1+I)^N FV= A*(1+I)^N8640 10140

You had annual earnings of Rs 45,000 in 20X1.By 20X8, your annual earnings have grown to Rs 67,550.What has been the cmpound annual rate of growthin your earnings?

Solution:

PV= 45000FV= 67550N= 7

fv=pv(1+r)^n67550=45000(1+r)^7r = 1.025%

You had annual earnings of Rs 45,000 in 20X1.By 20X8, your annual earnings have grown to Rs 67,550.What has been the cmpound annual rate of growth

You are planning to buy a 200 square meters of land for Rs 40,000.You will be required to pay twenty equal annual instalments of Rs 8,213.What compoundrate of interest will you be paying?

Solution:

pv = A(1-(1/1+r)^n)/r40000 = 8213(1-(1/(1+r)^20)/r

1.03%

You are planning to buy a 200 square meters of land for Rs 40,000.You will be required to pay twenty equal annual instalments of Rs 8,213.What compound

Jai Chand is planning for his retirement.He is 45 years old today,and would like to have Rs 3,00,000 when he attains the age of 60.He intends to deposit aconstant amount of money at 12% each year in the public provident fund in the State Bank of India to achieve his objective.How much money should Jai Chandinvest at the end of each year,for the next 15 years, to obtain Rs 3,00,000 at the end of that period?

Solution:

fv= A((1+r)^n - 1) / r300000= A((1.12^15)-1)/.12

8047.271

Jai Chand is planning for his retirement.He is 45 years old today,and would like to have Rs 3,00,000 when he attains the age of 60.He intends to deposit aconstant amount of money at 12% each year in the public provident fund in the State Bank of India to achieve his objective.How much money should Jai Chand

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

Solution:

fv= A((1+r)^n - 1) / r1000000 = A((1.1^30)-1)/.1A 6079.2483b. A(1+r)

6686.93

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

Your grandfather is 75 years old.He has total savings of Rs 80,000.He expects that he will live for another 10 years,and will like to spend his savings by then.He places his savings into a bank account earning 10% annually.He will draw equal amount each year-the first withdrawal occuring one year from now-in sucha way that his account balance becomes zero at the end of 10 years.How much will be his annual withdrawal?

Solution:

pv = A(1-(1/1+r)^n)/rPVAn = A {1+i)n-1} /{ i(1+i)n}=80000A{ 1.593742/0.259374}A =80000/ 6.144567A = 13019.63 Yrl

Your grandfather is 75 years old.He has total savings of Rs 80,000.He expects that he will live for another 10 years,and will like to spend his savings by then.He places his savings into a bank account earning 10% annually.He will draw equal amount each year-the first withdrawal occuring one year from now-in sucha way that his account balance becomes zero at the end of 10 years.How much will be his annual withdrawal?

You buy a house for Rs 5 lakh and immediatley make cash payment of Rs 1 lakh .You finance the balance amount at 12% for 20 years with equal annualinstallments.How much are the annual installments?How much of the each payment goes towards reducing the principal?

Solution:

FVAn=A*[(1+r)^n-1]/r

FVAn= 400000r=12%n=20years

400000 = A*[(1+0.12)^20-1]/0.12

A=Rs 5551.51

You buy a house for Rs 5 lakh and immediatley make cash payment of Rs 1 lakh .You finance the balance amount at 12% for 20 years with equal annualinstallments.How much are the annual installments?How much of the each payment goes towards reducing the principal?

You plan to buy a flat for Rs 2,00,000 by making Rs 40,000 downpayment.A house financing company offers you a 12-year mortgage requiring end-of-yearpayments of Rs 28,593.The company also wants you to pay Rs 5,000 as the loan-processing fee,which they will deduct from the amount of loan given to you.What is the rate of interest on loan?

Solution:

You plan to buy a flat for Rs 2,00,000 by making Rs 40,000 downpayment.A house financing company offers you a 12-year mortgage requiring end-of-yearpayments of Rs 28,593.The company also wants you to pay Rs 5,000 as the loan-processing fee,which they will deduct from the amount of loan given to you.

An investment promises to pay Rs 2,000 at the end of each year for the next 3 years and Rs 1,000 at the end of each year for 4 years through 7.(a)What maximum amount will you pay for such investment if your required rate is 13%?(b)If the payments are received at the beginning of each year,whatmaximum amount will you pay for investment?

Solution:

FVAn = A*[(1+r)^n-1]/r , r = 13%

For 1st 3 years A= 3000 For last 4 years A= 1000

FVAn= 2000[(1.13)^3-1]/0.13 + 1000[(1.13)^4 - 1]/0.13FVAn = Rs11663.197

Annuity Due = Ordinary Annuity(1+r)Annuity Due = 11663.197(1.13) = Rs. 13179.41

An investment promises to pay Rs 2,000 at the end of each year for the next 3 years and Rs 1,000 at the end of each year for 4 years through 7.(a)What maximum amount will you pay for such investment if your required rate is 13%?(b)If the payments are received at the beginning of each year,what

Mr Sundaram is planning to retire this year.His company can pay him a lump sum retirement payment of Rs 2,00,000 or RS 25,000 lifetime annuity -whicheverhe chooses.Mr Sundaram is in good health and estimates to live for atleast 20 more years.If his interest rate is 12% ,which alternative should he choose?

Solution:A= 25000I= 12%N= 20

FV= A*(1+I)^N

241157.33

I would suggest mr sudaram to go for Rs 25000 lifetime annuity as he would get Rs.241157 yearly than a lumosum amount of 200000.

Mr Sundaram is planning to retire this year.His company can pay him a lump sum retirement payment of Rs 2,00,000 or RS 25,000 lifetime annuity -whicheverhe chooses.Mr Sundaram is in good health and estimates to live for atleast 20 more years.If his interest rate is 12% ,which alternative should he choose?

I would suggest mr sudaram to go for Rs 25000 lifetime annuity as he would get Rs.241157 yearly than a lumosum amount of 200000.

Which alternative would you choose:(a) an annuity of Rs 5,000 at the end of each year for 30 years;(b)an annuity of Rs 6,600 at the end of each year for 20 years;(c) Rs 50,000, in cash right now? In each case,the time value of money is 10%.

Solution:

Case a Case bA= -5000 A= -6600N= 30 N= 20I= 10% I= 10%

FVA= Rs. 822,470.11 FVA= Rs. 378,015.00

I would choose case A as at the end of 30 years I get Rs.8,22,470.11 after investing Rs. 5000 today

Which alternative would you choose:(a) an annuity of Rs 5,000 at the end of each year for 30 years;(b)an annuity of Rs 6,600 at the end of each year for 20 years;

case cA= 50,000 immediately.

I would choose case A as at the end of 30 years I get Rs.8,22,470.11 after investing Rs. 5000 today

Ms Punam is interested in a fixed annual income.She is offered three possible annuities.If she could earn 8% on her money elsewhere,which of the following alternatives,if any,would she choose?Why? (a)Pay Rs 80,000 now in order to receive Rs 14,000 at the end of each year for the next 10 years .(b)Pay Rs 1,50,000 now in order to receive Rs 14,000 at the end of each year for the next 20 years. (c)Pay Rs 1,20,000 now in order to receive Rs 14,000 at the endof each year for the next 15 years.

Solution:

aA= 80,000I= 8%N= 10

PV= Rs 8000PV= Rs 8000PV= Rs 8000PV= Rs 8000PV= Rs 80000 , A = 14000 , let r= 8%PV = A*[1-{PV = A*[1-{PV = A*[1-{PV = A*[1-{PV = A*[1-{1/(1+r)^n}]/rPV= 14000[1PV= 14000[1PV= 14000[1PV= 14000[1PV= 14000[1-{1/(1.08)^10}] /0.08PV = Rs 93,PV = Rs 93,PV = Rs 93,PV = Rs 93,PV = Rs 93,941Hence r is Hence r is Hence r is Hence r is Hence r is not 8%

PV= Rs 1,50PV= Rs 1,50PV= Rs 1,50PV= Rs 1,50PV= Rs 1,50,000 , A = 14000 , let r= 8%PV = A*[1-{PV = A*[1-{PV = A*[1-{PV = A*[1-{PV = A*[1-{1/(1+r)^n}]/rPV= 14000[1PV= 14000[1PV= 14000[1PV= 14000[1PV= 14000[1-{1/(1.08)^20}] /0.08PV = Rs 1,3PV = Rs 1,3PV = Rs 1,3PV = Rs 1,3PV = Rs 1,37,454Hence r is Hence r is Hence r is Hence r is Hence r is not 8%

PV= Rs 1,20PV= Rs 1,20PV= Rs 1,20PV= Rs 1,20PV= Rs 1,20,000 , A = 14000 , let r= 8%PV = A*[1-{PV = A*[1-{PV = A*[1-{PV = A*[1-{PV = A*[1-{1/(1+r)^n}]/rPV= 14000[1PV= 14000[1PV= 14000[1PV= 14000[1PV= 14000[1-{1/(1.08)^15}] /0.08PV = Rs 1,1PV = Rs 1,1PV = Rs 1,1PV = Rs 1,1PV = Rs 1,19,875Hence r is Hence r is Hence r is Hence r is Hence r is around 8%

Hence c is Hence c is Hence c is Hence c is Hence c is better option

Ms Punam is interested in a fixed annual income.She is offered three possible annuities.If she could earn 8% on her money elsewhere,which of the following (a)Pay Rs 80,000 now in order to receive Rs 14,000 at the end of each year for the next 10 years .

(b)Pay Rs 1,50,000 now in order to receive Rs 14,000 at the end of each year for the next 20 years. (c)Pay Rs 1,20,000 now in order to receive Rs 14,000 at the end

PV= Rs 80000 , A = 14000 , let r= 8%PV = A*[1-{1/(1+r)^n}]/rPV= 14000[1-{1/(1.08)^10}] /0.08

PV= Rs 1,50,000 , A = 14000 , let r= 8%PV = A*[1-{1/(1+r)^n}]/rPV= 14000[1-{1/(1.08)^20}] /0.08

PV= Rs 1,20,000 , A = 14000 , let r= 8%PV = A*[1-{1/(1+r)^n}]/rPV= 14000[1-{1/(1.08)^15}] /0.08

Hence c is better option

You have come across the following investment opportunity :Rs 2,000 at the end of each year for the first 5 years plus Rs 3,000 at the end of each year from6 years through 9 plus Rs 5,000 at the end of each year from years 10 through 15.(a)How much will you be willing to pay for this investment if your requiredrate of return is 14%?(b)What will be your answer if payments are received at the beginning of each year?

Solution:

FVAn = A*[(1+r)^n-1]/rFVAn = 2000[(1.14)^5-1]/0.14 + 3000[(1.14)^4 -1]/0.14 + 5000[(1.14)^6 -1]/0.14FVAn = 13220 + 14763 + 62677.59FVAn = Rs 70,661

Annuity Due = Ordinary Annuity(1+r)Annuity Due = Rs 70,661(1.14) = Rs. 80,553

You have come across the following investment opportunity :Rs 2,000 at the end of each year for the first 5 years plus Rs 3,000 at the end of each year from6 years through 9 plus Rs 5,000 at the end of each year from years 10 through 15.(a)How much will you be willing to pay for this investment if your requiredrate of return is 14%?(b)What will be your answer if payments are received at the beginning of each year?

You have borrowed a car laon of Rs 50,000 from your employer.The loan requires 10% interest and five equal end-of-year payments.Prepare a loanamortization schedule.

Solution:

Year Beginning Annual Inv Interest ( Prrincipal Remaining Balance1 50000 13189.87 5000 8189.87 41810.132 41810.13 13189.87 4181 9009 328013 32801 13189.87 3280 9910 228914 22891 13189.87 2289 10901 119905 11990 13189.87 1199 11991 -1

Interset = 10%(50000)Int = Rs 5000

Loan Amount = A*[1-{1/(1+r)^n}]A= 13, 189.87

The balance -1 is round off error

You have borrowed a car laon of Rs 50,000 from your employer.The loan requires 10% interest and five equal end-of-year payments.Prepare a loan

If the nominal rate of interest is 12% per annum,calculate the effective rate of interest when a sum is compounded (a)annually (b)semi-annually (c) quarterly and (d) monthly.

Solution:

Given k=12% = 0.12

Effective ROI ={ (1+k/m)^m - 1}

For Annual : m=1 ROI = 0.12%For Semi Annual : m=2 ROI = 0.1236%For Quarterly : m=4 ROI = 0.1248%For Monthly : m=12 ROI = 0.1268%

If the nominal rate of interest is 12% per annum,calculate the effective rate of interest when a sum is compounded (a)annually (b)semi-annually

What amount would an investor be willing to pay for a Rs 1,000 ,ten-year debenture that pays Rs 75 interest half-yearly and is sold to yield 18%?

Solution:

What amount would an investor be willing to pay for a Rs 1,000 ,ten-year debenture that pays Rs 75 interest half-yearly and is sold to yield 18%?

The Mudra Bank pays 12% interest and compounds interest quarterly.If one puts Rs 1,000 initially into a savings account,how much will it grow in 7&1/2 years?

Solution:

The Mudra Bank pays 12% interest and compounds interest quarterly.If one puts Rs 1,000 initially into a savings account,how much will it grow in 7&1/2 years?

An already issued government bond pays Rs 50 interest half-yearly.The bond matures in 7 years.Its face value is Rs 1,000.A newly issued bond,which pays12% annually ,can also be bought.How much would you like to pay for the old bond?How much would you pay for the bond if it is redeemed at a premium of 10%?

Solution:

An already issued government bond pays Rs 50 interest half-yearly.The bond matures in 7 years.Its face value is Rs 1,000.A newly issued bond,which pays12% annually ,can also be bought.How much would you like to pay for the old bond?How much would you pay for the bond if it is redeemed at a premium

If you deposit Rs 10,000 in an account paying 8% interest per year,compounded quarterly ,and you withdraw Rs 100 per month,(a)How long will the moneylast?(b)How much money will you receive?

Solution:

If you deposit Rs 10,000 in an account paying 8% interest per year,compounded quarterly ,and you withdraw Rs 100 per month,(a)How long will the money

XY Company is thinking of creating a sinking fund to retire its Rs 8,00,000 preference share capital that matures on 31st December 20X8.The company plans toput a fixed amount into the fund at the end of each year for 8 years.The first payment will be made on 31st December 20X1,and the last on 31st December 20X8?What would be your answer if the annual contribution is made in the beginning of the year,the first payment being made on 31st December 20X0?The co' expects that the fund will earn 12% interest rate per year.

Solution:

XY Company is thinking of creating a sinking fund to retire its Rs 8,00,000 preference share capital that matures on 31st December 20X8.The company plans toput a fixed amount into the fund at the end of each year for 8 years.The first payment will be made on 31st December 20X1,and the last on 31st December 20X8?What would be your answer if the annual contribution is made in the beginning of the year,the first payment being made on 31st December 20X0?

In January 20X1,X Ltd.issued Rs 10 crore of five-year bonds to be matured on 1st January 20X6.The interest was payable semi-annually on January 1 and July 1;The interest rate was 14% per annum.Assume that on 1st January 20X2,a new 4-year bond of equivalent risk could be purchased at face value with aninterest rate of 12% and that you had purchased a Rs 1,000 X Ltd. bond when the bonds were originally issued.What would be its market value on January 1,20X2?

Solution:

In January 20X1,X Ltd.issued Rs 10 crore of five-year bonds to be matured on 1st January 20X6.The interest was payable semi-annually on January 1 and July 1;The interest rate was 14% per annum.Assume that on 1st January 20X2,a new 4-year bond of equivalent risk could be purchased at face value with aninterest rate of 12% and that you had purchased a Rs 1,000 X Ltd. bond when the bonds were originally issued.What would be its market value on January 1,20X2?

You want to buy a 285-litre refrigerator of Rs 10,000 on an installment basis.A distributor of various makes of refrigerators is prepared to do so.He states thatthe payments will be made in 4 years,interest rate being 13%.The annual payments would be as follows:

RsPrincipal 10,0004 years of interest at 13% i.e.,Rs10,000 * 0.13*4 5,200

15,200Annual payments,[Rs 15,200]/4 3,800 What rate of return the distributor is earning?

Solution:

You want to buy a 285-litre refrigerator of Rs 10,000 on an installment basis.A distributor of various makes of refrigerators is prepared to do so.He states thatthe payments will be made in 4 years,interest rate being 13%.The annual payments would be as follows:

What rate of return the distributor is earning?

You have approached a loan and chit fund company for an 8-year loan of Rs 10,000 ;payments to the company to be made at the end of the year.The loanofficer informs you that the current rate of interest on the loan is 12% and that the annual payment will be Rs 2,013.Show that this annual cash flow providesa rate of return of 12% on the bank's investment of Rs 10,000.Is 12% the true interest rate to you?In other words,if you pay interest of 12% on youroutstanding balance each year,will the remainder of the Rs 2,013 payments be just sufficient to repay the loan?

Solution:

You have approached a loan and chit fund company for an 8-year loan of Rs 10,000 ;payments to the company to be made at the end of the year.The loanofficer informs you that the current rate of interest on the loan is 12% and that the annual payment will be Rs 2,013.Show that this annual cash flow providesa rate of return of 12% on the bank's investment of Rs 10,000.Is 12% the true interest rate to you?In other words,if you pay interest of 12% on youroutstanding balance each year,will the remainder of the Rs 2,013 payments be just sufficient to repay the loan?

If a person deposits Rs 1,000 on an account that pays him 10% for the first 5 years and 13% for the foloowing 8 years,what is the annual compunded rate of interest for the 13-year period?

Solution:

1 A = 1000I = 10%N = 5

Compound Interest = A*(1+I)^N1610.51

2 A = 1000I = 13%N = 8

Comppound Interest = A*(1+I)^N2658.4442

13 year period compound interest4268.954

If a person deposits Rs 1,000 on an account that pays him 10% for the first 5 years and 13% for the foloowing 8 years,what is the annual compunded rate of