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Tutorial (Time Value of Money)

The document presents a tutorial on the Time Value of Money, outlining various financial scenarios involving cash flows, interest rates, and loan repayments. It includes problems such as comparing present values of cash options, calculating effective interest rates, and determining future worth and present value of investments. The tutorial is designed to help individuals understand and apply financial principles over different time frames and interest conditions.

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078bce004.aakriti
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48 views2 pages

Tutorial (Time Value of Money)

The document presents a tutorial on the Time Value of Money, outlining various financial scenarios involving cash flows, interest rates, and loan repayments. It includes problems such as comparing present values of cash options, calculating effective interest rates, and determining future worth and present value of investments. The tutorial is designed to help individuals understand and apply financial principles over different time frames and interest conditions.

Uploaded by

078bce004.aakriti
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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TIME VALUE OF MONEY

TUTORIAL
[Cash flow diagram are to be drawn where possible]
1. You are offered two options: receiving RS. 10,000 today or RS. 12,000 in 3 years. If
the annual interest rate is 5%, which option should you choose based on their
present values?
2. Find effective interest rate when nominal interest rate is 16% per annum &
compounding is
a. Monthly
b. Quarterly
c. Daily
d. Weekly
e. Continuous
3. While Mr. Adhikari was 20 years his family had burrowed a sum of Rs 500000 from a
corporative for his further education. The corporative agreed the interest to be
@11 p.a to be compounded quarterly. Mr. Adhikari wished to pay the loan in an
equal semiannual installments such that the first installment begins after 5 years of
financing the loan. Assume that the current age of Mr. Adhikari is 40 years, what is
the total amount that he had to pay to clear the loan?
4. A young entrepreneur has decided that he wants to retire young at the age of 40.
He is willing to deposit Rs. 5000 at the end of first year then increase his deposit by
Rs. 1000 for remaining years before he retire. Assuming the interest to be 15%.
What would be the total amount he will have while retiring? He is 30 years old
during this time.
5. Pappu Construction Org. made an investment of Rs. 100000 in real state. The
property generates a net profit of Rs. 20000 in the initial year. The profit is
projected to decrease by 10% each year for coming 40 years, determine the present
worth of the investment if the interest rate is 12%?
6. Evaluate future worth at end of 10 years with 8% interest rate compounded
continuously with the cash flow of Rs. 500 at the beginning of each year for the first
five years.
7. Mrs. Ghimire intends to withdraw some amount each month from her Siddhartha
bank account. She withdraws Rs. 5000 at the end of this month and increase the
withdrawal amount by 2 percent per month. She plans to continue this for next 15
years, how much cash should she deposit now to enable these transactions?
8. A man aged 40 years now had borrowed Rs. 5,00,000 from a bank for his further
studies at the age of 20 years. Interest was charged at n% per year compounded
quarterly. He wished to pay loan in semiannual equal installments with the first
installment beginning 5 years after receiving the loan. He has just cleared the loan
now. What amount did he pay in each installment?
9. You are preparing the business plan for a new company. A net revenue analysis
covering the first six years is required for obtaining financing. Net revenue in a year
one is expected to be Rs 50,000 and increase by 15% each year thereafter. If
interest rate is 12% and the net revenue is assumed to be end of year cash flow,
what is the present value of the cash flow series over the 6 years?

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