Time value of money1. If you invest Rs. 10,000 today for a period of 5 years, what will be the maturity value if the interest rate is?

(a) 8% (b) 10% (c) 12% (d) 15%

Ans: (a) Rs. 14,693 (b) Rs. 16,105 (c) Rs. 17,623 (d) Rs. 20,113. 2. How many years will it take for Rs. 5,000 invested today at 12% rate of interest to grow to Rs. 1,60,000? Use the rule of 72.

Ans: 30 years

3. Amount invested today = Rs. 1,000; maturity value = Rs. 8,000; time period = 12 years. Use rule of 69 to calculate the implied interest rate.

Ans: 18.9 %

4. If you invest Rs. 3,000 a year for 3 years and Rs. 5,000 a year for 7 years therefore at a rate of 12%, what will be the maturity value at the end of 10 years?

Ans: Rs. 72,824

5. Sunita expects an expenditure of Rs. 2,00,000 after a period of 10 years. How much should she save annually to have the required sum after 10 years, if she invests her savings at a rate of 12%.

Ans: Rs. 11,397

6. Annual payment = Rs. 1,500; maturity value = Rs. 12,500, period = 5 years. Find out the implied interest rate.

Ans: 25.73%

7. You invest Rs. 3,000 today and get Rs. 10,000 after 6 years. What is the implied interest rate?

Ans: 22.22%

8. What will be the present value of Rs. 12,000 receivable after 10 years if the rate of discount is (i) 10% (ii) 12% (iii) 15%

Ans: (i) Rs. 4,6325 (ii) Rs. 3,864 (iii) Rs. 2,9649. What is the present value of a 5 year annuity of Rs. 3,000 at 12% Ans: Rs. 10,81510. Mr. Srinivas is going to retire after 6 months. He has a choice between

(a) an annual pension of Rs. 8,000 as long as he lives, and

(b) A lump sum amount of Rs. Amount of Rs. 50,000. If he expects to live for 20 years and the interest rate is 10% which option would you suggest him to go for?

Ans: Rs. 68,11211. Sunil has deposited Rs. 2,00,000 in a bank, which pays interest @8%. How much can he withdraw every year for a period of 25 years, so that there is no balance left at the end?

Ans: Rs. 18737

12. You invest Rs. 1,500 at the end of year one, Rs. 2,000 at the end of the second year, and Rs. 5,000 each year form the third year to the tenth. Calculate

the present value of the stream if the discount rate is 10%. Ans: Rs. 16,79013. You receive Rs. 1,000 a year for the first 8 years, and Rs. 4,000 a year forever therefore. Calculate the present value if the discount rate is 12%.

Ans: Rs. 18,435.

15. A company is offering to pay Rs. 10,000 annually for a period of 10 years if you deposit Rs. 50,000 now. What is the implied interest rate?

Ans: 15.1%