Financial Management
Module 2 : Time Value of Money
Problems
1. Mr. A gives a loan of Rs. 10,000 to Mr. B for the period of one year. Assume simple
rate of interest is 10% per annum. Find out the total amount that Mr. A gets at the
end of the year.
2. Mr. X gives a loan of Rs. 10,000 to Mr. Y for a period of 3 years. Assume simple
interest of 10% per annum , Find out total amount Mr. X gets at the end of 3rd year.
3. Mr. A gives a loan of Rs. 15,000 to Mr. B at a compounding interest of 10% per
annum. Find out the total sum of money, which Mr. A should receive at the end of 3
years.
4. Rs. 25,000 is given as loan to Mr. X at a compounded interest of 15% per annum.
Find out the total amount of money at the end of 5th year.
5. Calculate the compounded value when Rs. 1,000 invested for 3 years and interest on
it is compounded at 10% per annum semiannually.
6. Assume Mr. X deposits his savings of Rs. 2,000 in a 2 years’ time deposit scheme of a
bank, which yields 6% interest per annum. Calculate the compound value if the
interest is compounded a. semiannually, b. quarterly
7. Mr. Raj invests Rs. 30,000 at 12% interest in a syndicate bank for 5 years. What
amount does he receive at the end of 5 years, if compounded annually and
quarterly?
8. Suppose Mr. X deposits each year Rs. 500, Rs. 1,000, Rs. 1,500 Rs. 2,000 and Rs.
2,500 in his savings account for 5 years. If the interest rate is 8%, he wishes to find
out the future value of his deposits at the end of 5 years. Assuming that the
compounding time period is one year and payment is made at the end of each year.
9. Suppose Mr. Yashwanth deposits each year Rs. 2,000, Rs. 3,000 Rs. 4,000, Rs. 5,000
and Rs. 6,000 in his savings account for 5 years. If the interest rate is 5%, he wishes
to find out the future value of his deposits at the end of 5 years. Assuming that the
compounding time period is one year and payment is made at the beginning of each
year.
10. Mr. X deposits Rs. 3,000 at the end of the year for five years in his savings bank
account paying 5% interest compounded annually. He wants to determine; how
much sum of money he will have at the end of 5th year.
MBA II Sem 1
Financial Management
11. A four-installment annuity of Rs. 5,000 is deposited into an account, which pays 9%
interest compounded yearly. The annuity payment begins in the 6th year. What is the
compounded amount of annuity?
12. Mr. X wishes to know the sum of money he will have in his savings account, which
pays 5% interest (compounded annually) at the end of 12 years. If he deposits
Rs. 1,000 at the end of each year for the next 12 years.
13. If you deposit Rs. 5,000 today at 6% rate of interest, in how many years will this
amount double? Work out this problem by using the rule 72 and rule of 69.
14. From the following cases, calculate the sum of annuity generated by the deposit
given the specified rate and number of years:
Case Amount Deposited Annual Interest Rate No. of years
A 2,000 10% 5
B 10,000 12% 10
C 5,000 8% 4
D 6,000 14% 12
15. For each of the following cases, calculate the amount of money in the account at the
end of the deposit period:
Case Amount Annual Interest Deposit Period Compounding
Deposited Rate (Years) period (Months)
A 10,000 11% 10 12
B 2,000 10% 5 6
C 4,000 8% 4 3
D 3,000 12% 3 1
E 5,000 12% 4 2
F 4,000 16% 6 4
16. If Mr. X, a depositor expects to get Rs.100 after 1 year at the rate of 10%, what is the
amount he will have to forego at present?
17. If Mr. Z, the depositor expects to get Rs.1, 000 after 1 year at the rate of 6%, what is
the amount he will have to forego at present?
MBA II Sem 2
Financial Management
18. Given the time value of money at 10% (discounting rate), you are required to find
out the present value of cash inflows that will be received over next four years.
Year Cash flows (Rs)
1 1,000
2 2,000
3 3,000
4 4,000
19. Given the Discount rate as 15%, find the present value of cash inflows that will be
received over next five years.
Year Cash flows (Rs)
1 1,500
2 3,000
3 4,500
4 6,000
5 7,000
20. Calculate the present value annuity of Rs.500 received annually for 4 years when
discounting factor is 10%.
21. Find out the Present value of annuity of Rs. 3,000 over 3 years where discounted at
10%.
22. A five-installment annuity of Rs. 12,000 begins in the year 10. What is the Present
value of annuity discounted at 12%?
23. You have invested Rs. 1,00,000 in a project from which the returns at the end of 1 st
year is Rs. 10,000. The returns increase each year by 10%. If the investment is for the
period of 4 years, what is the present value of returns? Assume discount rate as 14%.
24. You have invested Rs. 1,00,000 in a project from which the returns at the end of 1 st
year is Rs. 10,000. The returns increase each year by 10%. If the investment is for the
period of 10 years, what is the present value of returns? Assume discount rate as 14%.
25. Suppose you have a right to harvest a teak plantation for the next 20 years over
which you expect to get 1,00,000 cubic feet of teak per year. The current price per
cubic feet of teak is Rs. 500, but it is expected to increase at a rate of 8 percent per
year. The discount rate is 15 per cent. What is the present value of teak that you can
harvest from the teak forest?
MBA II Sem 3
Financial Management
26. Mr. X intends to have a return of Rs. 10,000 per annum for perpetuity. In case
the discount rate is 20%, calculate the present value of perpetuity.
27. Rs. 1,000 at the end of 5 years is equivalent to value how much today assuming
an interest rate of a. 0%, b. 1%, c. 5%, d. 10%, and e. 20%.
28. Calculate Present Value of Rs. 10,000 received from the end of year 7 forever at a
discount rate of 15%.
29. Calculate present value from the following information:
a. Cash Flow at the end of year One – Rs. 10,000.
b. Growth rate – 8%
c. Period – Infinity
d. Discount rate – 12%.
30. Calculate the present value from the following information:
a. Cash inflows at the end of Year Six – Rs. 2,00,000.
b. Growth rate – 10% forever.
c. Discount Rate – 15%.
d. Period – Infinity.
31. What is the effective rate of interest, if the rate of interest is 12% per annum,
when compounding is done annually, semiannually, and quarterly?
32. What is the effective rate of interest if the rate of interest is 18% per annum,
when compounding is done annually, semiannually, quarterly and monthly?
33. A company has raised a loan of Rs. 5,00,000 from a financial institution at 8%
per annum rate of interest. The amount has to be paid back in 5 equal annual
installments. What shall be the size of installment?
MBA II Sem 4
