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Time Value of Money

The document discusses various financial scenarios involving the Time Value of Money, including calculations for future amounts based on different interest rates and compounding methods. It covers topics such as lump-sum investments, annual deposits, present value of cash flows, and comparisons of investment options. The scenarios provided require applying formulas for compound interest and present value to determine the financial outcomes over specified periods.

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notsoserious9145
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77 views1 page

Time Value of Money

The document discusses various financial scenarios involving the Time Value of Money, including calculations for future amounts based on different interest rates and compounding methods. It covers topics such as lump-sum investments, annual deposits, present value of cash flows, and comparisons of investment options. The scenarios provided require applying formulas for compound interest and present value to determine the financial outcomes over specified periods.

Uploaded by

notsoserious9145
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Time Value of Money

1. A deposits Rs. 5000 in a bank which gives 10% interest compounded annually for 6 years. You are required to
find out the amount to be received after 6 years.

2. R deposits Rs 7000 in an FD scheme of a bank which gives 10% interest compounded half-yearly for 5 years.
How much amount to be received after 5 years? If the scheme compounds interest quarterly, what will be the total
amount received after 5 years?

3. At age 20, what lump-sum investment should be made to get Rs. 100000 at the age of 35, assuming a
compound growth rate of 10% p.a?

4. A deposits Rs. 10000 annually in an investment scheme for 10 years @10% compounded annually. How
much he will receive after 10 years?

5. Ram’s father promised him to give Rs. 200000 in cash on his 21st birthday. Today is his 12th birthday. His
father wants to know if he makes annual payments into a fund, how much will be the amount of deposit?

6. Find the effective rate of interest, if the nominal rate of interest is 12% and the interest is compounded
quarterly.

7. ICICI Ltd. Offers fixed deposits @12% pa, Mr. X is interested in determining the period in which his principal
would double. Find the doubling period using the shortcut method.

8. An investor has an opportunity to receive Rs. 2000, Rs.3000, Rs. 1600, Rs. 2200 and Rs.800 at the end of
each year for the next five years. Find out the present value of this stream of cash flow, if the investor's time
preference rate is 8%.

9. Compute the present / Discounted value of the following future cash inflows, assumi8ng a required rate of
10% p.a.: (a) Rs. 100 a year for years 5 through10 and (b) Rs. 100 a year for years 1 through 3 years, nil in years 4
through 5 and Rs 100 a year for years 6 through 10.

10. An investor is 50 years of age today. He will retire at the age of 60. To receive Rs. 200000 annually for 10
years after retirement, how much amount should he have at the time of retirement? Assume the required rate of
return is 10%.

11. An executive is about to retire at the age of 60 years. His employer has offered him two post-retirement
options: (a) Rs. 2000000 lump sum, and (b) Rs. 250000 for 10 years. Assuming 10% interest, which option is better?

12. A company has an opportunity to invest Rs.500000 in a business proposal which will give cash profit of Rs.
150000, 175000, 75000, 50000, 25000, and 85000 in the coming 5 years, should the company invest in the proposal.
The rate of Interest is 10%.

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