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PS 2 TimeValueofMoney

The document contains problems related to time value of money concepts including present value of annuity, future value of annuity, future value of growing annuity, and present value of growing annuity. It includes multiple questions under each concept requiring calculations to determine loan amounts, maturity periods, installment amounts, annual withdrawals, accumulated amounts, and more using interest rates between 8-12%.

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Dharmesh Goyal
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17 views

PS 2 TimeValueofMoney

The document contains problems related to time value of money concepts including present value of annuity, future value of annuity, future value of growing annuity, and present value of growing annuity. It includes multiple questions under each concept requiring calculations to determine loan amounts, maturity periods, installment amounts, annual withdrawals, accumulated amounts, and more using interest rates between 8-12%.

Uploaded by

Dharmesh Goyal
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

Problem Set -2

(Future Value and Present Value of Annuity)

A. Present Value of Annuity:

1. Asha can pay Rs. 1.50 Lacs every year for the next 5 years in order to buy a new
car. If the bank is ready to give you a loan @ 8.75% pa, what is the maximum loan
amount you can avail now? If the car costs Rs. 6,25,000/-, how much down
payment would be required?

2. Mr. Dixit wants to buy a flat for Rs. 20 Lacs. He approached ABN Housing Finance
for a loan which charges interest @ 11.25% pa. Mr. Dixit can pay Rs.2.50 Lacs every
year towards the loan repayment. What should be the maturity period of the loan?

3. Azad has bought a LED television set costing Rs. 36,000/- on installment basis
paying 36 equal monthly installments. If the dealer charges interest @ 1.5% per
month, what is the amount of each installment?

4. On retirement Mr. Pandey received a sum of Rs 30 Lacs from his employers. He


deposited the same in a bank account which pays interest @ 9%pa. How much can
he withdrawn each year for the next 10 years?

B. Future Value of Annuity:

1. Satpathy has decided to deposit Rs. 45,000/- every year in a Public Provident Fund
account for 15 years. What will be the accumulated amount at the end of 15 years,
if the interest rate is 9% pa?

2. Reliance Industries Ltd. has issued 50,00,000 Non-Convertible Debentures of Rs.


100/- each to be repaid at the end of 7 years. How much amount should the
company set aside each year so as to meet the redemption liability? Assume the
interest rate as 12% p.a.

3. Milagrow Finance advertises that it will pay a lump sum of Rs. 8,000/- at the end
of 6 years to investors who deposit Rs. 1000/- annually for 6 years. What rate of
interest the finance company is offering?

4. You want to take a trip to Europe which is expected to cost Rs 15 Lacs (the cost is
assumed to remain constant). You can save Rs 75,000/- each year. Assuming you
earn interest @ 8%pa, how long will you have to wait for the trip?

Dr. Pankaj Varshney Page 1 of 2


C. Future Value of Growing Annuity:

1. Andy plans to retire in twenty years. If the annual (year-end) amount he saves each
year increases annually @6% and is Rs. 10,000/- initially at year end, and if he can
earn 8% on his savings, how much will his retirement fund be worth in 20 years?

2. You wish to save annually an increasing (@6% pa) amount and wish to be worth Rs.
100,000/- in 10 years. If you can earn 10% compounded annually on your savings,
how much should your first (end-of-year) amount saved be?

D. Present Value of Growing Annuity:

1. The annual end-of-year lease payments on a building increase @10% annually for
the next 5 years. If 8% is an appropriate interest rate and if the first years’ lease
payment is Rs. 10,000/- what is the most an investor would pay to be the recipient
of these lease payments?

2. Uncle Harvey expects to live another 10 years. He currently has Rs. 50,000/- in
savings which he wishes to spread evenly in terms of purchasing power over the
next 10 years. Since he feels inflation will average 6% annually, his annual
beginning-of-year withdrawals should increase @ 6%. If he earns @ 8% on his
savings not withdrawn, how much should his first withdrawal be?

*****

Dr. Pankaj Varshney Page 2 of 2

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