Quiz 1-A

 All questions are compulsory.

Q 1. If you require a 9% return on your investments, which would you prefer?

a) 5000 today
b) 15000 received in 5 years.
c) 1000 per year for 15 years

Answer: a. Present value of $5,000 today = $5,000

b. Present value of $15,000 received in 5 years at 9%:

PV0 = $15,000(PVIF.09,5) = $15,000 (0.650) = $9,750 (tables)

$9749 (calculator)

c. Present value of a 15 year, $1,000 annuity at 9%:

PVAN0 = $1,000 (PVIFA.09,15) = $1,000(8.061) = $8,061

Therefore, you prefer $15,000 in five years because it has the highest present value.

Q2. The Aditya Leasing company has agreed to give on rent a hydraulic trencher to the IIMV for
20,000 a year over the next 8 years. Payments are to be made at the beginning of the period. The
company invests these payments at an annual rate of 9%. How much it would have accumulated
by the end of 8 years.

a) 240,400.40
b) 21,0340
c) 222,345
d) 240,420
e) None of the above

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Answer - =FV(0.09,8,-20000,,1) = ₹ 2,40,420.73

Q 3. A leading broker has advertised money multiplier certificate that will triple your money in 9
years. If you buy one for 333.33 today, it will pay you 1000 at the end of nine years. What rate of
return will you earn on this money multiplier certificate.

a) 12.98%
b) 14%
c) 12%
d) 11%

$1,000 = $333.33(FVIFi,9)

FVIFi,9 = 3.000

i  13% from Table I. (12.98% by calculator)

Q 4. Ms. Arina bought a building for 60,000 payable on following terms Rs 10,000 down payment and 25

equal annual instalments payments to include principal and interest of 10 % per annum. Calculate the

amount of the instalment’s payments.

a) 5508.40

b) 5400.20

c) 5800

d) None of the above

e) PVAN0 = $60,000 - $10,000 = $50,000

f) $50,000 = PMT(PVIFA.10,25) = PMT(9.077)

g) PMT = $5,508.43 (tables)

h) $5,508.40 (calculator)

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Q 5. Sana is planning for her retirement. She is 30 year old today and would like to have 600,000
when she turns 55. She estimates that she will be able to earn a 9% rate of return on her
retirement investment over time. She wants to set aside constant amount of money every year to
help achieve her objective.

a)7083.75

b) 7003.75

c) 7183.75

d) None of the above

=600000/FV(0.09,25,-1,,0)

Q 6. Your uncle is 82 years old. Over the years, He has accumulated savings of Rs 80,000. He
estimates he will live for another 10 years and wants to spend his savings by then. Uncle places
money in account earning 10% annually and sets it up such a way that he will be making 10 equal
withdrawals, first one occurring one year from now. How much he is able to withdraw each year.

a) 13450.78

b) ₹ 13,019.63

c) 1289.2

d) None of the above

=80000/PV(0.1,10,-1,,0)

Q 7. Your mother is planning to retire this year. Her firm has offered a lumpsum retirement payment
of 50,000 or 6000 lifetime annuity. Which option she should choose assuming 8% interest rate.

A. Choose 50,000

B . Choose 6000 annuity.

C. Both the above

=6000/0.08

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Q 8. You deposit Rs 4500 per year at the end of each of the next 25 years into an account that pays
10% compounded annually. How much could you withdraw at the end of each of the 20 years
following your last deposit? The first withdrawal is made at the end of the first year in the 20-year
period.

a) ₹ 51,983.14
b) ₹ 51,900
c) ₹53400
d) None of the above

FVAN25 = $4,500(FVIFA.10,25) = $4,500(98.347)

FVAN25 = $442,561.50 (amount in account at the end of 25 years)

PVAN0 = $442,561.50 = PMT(PVIFA.10,20) = PMT(8.514)

PMT = $51,980.44 (Calculator solution = $51,983)

Q 9. My investments develop retirement programs for individuals. You are 30 years of age and
plans to retire on your 60th birthday. You want to establish a plan with IRA that require a series of
equal annual end of the year deposit into retirement account. The first deposit will be made one
year from today on your 31 st birthday. Final payment will be made on 60 th birthday. The retirement
plan will allow you to withdraw Rs 120,000 per year for 15 years, with the first withdrawal on your
61st birthday. Also at the end of 15 th year, you wish to withdraw an additional 250,000. The
retirement account promises to earn 12% return annually. What periodic payment must be made
into account to achieve your retirement objective.

A) 3675.884495
b) 3575.884495
c) 3775.884495
d) 3975.884495

Amount needed in account after final deposit on your 60th birthday:

PV0 = $120,000(PVIFA.12,15) + $250,000(PVIF.12,15)

PV0 = $120,000(6.811) + $250,000(0.183)

PV0 = $863,070

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 $863,070 = PMT(FVIFA.12,30) = PMT(241.333)

PMT = $3,576

Q. 10 You have just had your 30th birthday. You have two children. One will go to college 10 years
from now and require 4 beginning of the year payments for the college expenses of 10,000, 11000,
12000 and 13000 respectively. The second child will go to college 15 years from now and require 4
beginning of the year payments 15000, 16000, 17000 and 18000.In addition you plan to retire in 30
years. Youn want to be able to withdraw 50,000 per year (at the end of each year) from your
account throughout your retirement. You expect to live 20 years beyond retirement. The first
withdrawal happens on your 61st birthday. Rate of return on saving is 13%.

A) 3869

b) 3455

c)3677

d) none of the above

Present value of payments to first child for college:

$10,000 (PVIF.13,10) = $10,000 (0.295) = $2,950

$11,000(0.261) = $2,871

$12,000(0.231) = $2,772

$13,000(0.204) = $2,652

Total $11,245

Present value of payments to second child for college:

$15,000(PVIF.13,15) = $15,000(0.160) = $2,400

$16,000(0.141) = $2,256

$17,000(0.125) = $2,125

$18,000(0.111) = $1,998

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Total $8,779