10 basic-level questions

1. Present and Future Value of Single Payments

1. What is the future value of ₹10,000 invested today for 5 years at an annual interest
rate of 8%?

2. Calculate the present value of ₹50,000 to be received 10 years from now, assuming a
discount rate of 6%.

2. Present and Future Value of Annuities and Annuities Due

3. If ₹5,000 is deposited at the end of every year for 4 years at an annual interest rate of
10%, what is the future value of the ordinary annuity?

4. Question: Calculate the present value of an annuity due where ₹1,000 is paid at the
beginning of each year for 3 years, and the annual interest rate is 5%.

3. Growth in Annuities and Perpetuities

5. Question: A perpetuity pays ₹2,000 annually, and the discount rate is 8%. What is
the present value of this perpetuity?

6. Question: What is the present value of a growing perpetuity where the initial
payment is ₹1,500, the growth rate is 4%, and the discount rate is 7%?

4. Compound Interest and Continuous Compounding

7. Question: Calculate the future value of ₹20,000 compounded semi-annually for 2

years at an annual interest rate of 6%.

8. Question: If ₹5,000 is invested at 8% annual interest compounded continuously,

what will be its value after 3 years?

5. Annual Percentage Rates (APR) and Effective Annual Rates (EAR)

9. Question: A loan has a nominal interest rate of 12% compounded quarterly. Calculate
the effective annual rate (EAR).

10. Question: If the annual percentage rate (APR) is 15% for a loan compounded
monthly, what is the effective annual rate (EAR)?

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10 mid-level questions

1. Present and Future Value of Single Payments

1. A company expects to receive ₹1,00,000 six years from now. If the discount rate is 7.5%,
calculate the present value of this amount.

2. How long will it take for ₹50,000 to grow to ₹80,000 at an annual interest rate of 9%,
compounded annually?

2. Present and Future Value of Annuities and Annuities Due

3. A person deposits ₹10,000 at the end of each year in a savings account that pays 8%
annual interest. Calculate the future value of this ordinary annuity after 8 years.

4. You are offered an investment that requires you to pay ₹5,000 annually for 5 years,
starting immediately. If the discount rate is 6%, calculate the present value of the annuity due.

3. Growth in Annuities and Perpetuities

5. Calculate the present value of a growing perpetuity where the first payment is ₹1,200, the
growth rate is 3%, and the discount rate is 8%.

6. An investor will receive ₹5,000 at the end of each year for the next 10 years, with the
payments increasing by 2% annually. The discount rate is 7%. Calculate the present value of
the growing annuity.

4. Compound Interest and Continuous Compounding

7. A principal of ₹15,000 is invested at 5% annual interest, compounded quarterly. Calculate

the future value after 7 years.

8. If ₹25,000 is invested at 6% annual interest compounded continuously, what will its value
be after 5 years?

5. Annual Percentage Rates (APR) and Effective Annual Rates (EAR)

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9. A credit card has a nominal interest rate (APR) of 18%, compounded monthly. Calculate
the effective annual rate (EAR).

10. A bank offers two deposit schemes:

 Scheme A: 10% nominal annual interest, compounded quarterly.

 Scheme B: 9.5% nominal annual interest, compounded monthly.
Which scheme should you choose based on the effective annual rate (EAR)?

10 advanced-level questions

1. Present and Future Value of Single Payments

1. An investor wants to accumulate ₹5,00,000 in 15 years. If the interest rate is 8%

compounded annually, what amount should they invest today?

2. You invest ₹2,00,000 in an account that earns 6% compounded semi-annually. How long
will it take for the investment to double in value?

2. Present and Future Value of Annuities and Annuities Due

3. A loan of ₹5,00,000 is to be repaid in 10 annual installments at an interest rate of 7%.

Calculate the annual installment amount.

4. If ₹15,000 is deposited at the beginning of each quarter for 5 years at an annual interest
rate of 10%, compounded quarterly, calculate the future value of this annuity due.

3. Growth in Annuities and Perpetuities

5. A perpetual scholarship fund is set up to provide ₹2,50,000 annually, growing at 4% per

year. If the discount rate is 9%, calculate the initial investment required to establish the fund.

6. A growing annuity pays ₹10,000 at the end of the first year, with payments increasing by
3% annually. If the annuity lasts for 15 years and the discount rate is 8%, calculate its present
value.

4. Compound Interest and Continuous Compounding

7. A firm deposits ₹1,00,000 in a savings account that offers 5% annual interest compounded
continuously. What will the balance be after 8 years?

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8. You are offered an investment opportunity that pays ₹2,00,000 after 5 years. The
investment grows at a continuously compounded rate of 6%. What is the present value of this
investment?

5. Annual Percentage Rates (APR) and Effective Annual Rates (EAR)

9. A loan has an APR of 12% compounded monthly. You are required to pay monthly
installments for 5 years. Calculate the effective annual rate (EAR) and the total interest paid
over the loan term if the principal is ₹10,00,000.

10. Two banks offer different savings accounts:

 Bank A: 9.75% nominal interest, compounded quarterly.

 Bank B: 9.5% nominal interest, compounded monthly.
Which bank provides a higher effective annual rate (EAR), and by how much?

Present and Future Value of Single Payments

1. A company plans to buy a new machine worth ₹20,00,000 in 5 years. The company sets
aside ₹3,00,000 annually into an investment fund earning 9% compounded annually. Will
they have enough funds at the end of 5 years? If not, calculate the shortfall.

2. You are offered a lump sum payment of ₹12,00,000 to be received 8 years from now. The
discount rate is 10% compounded quarterly. What is the present value of this payment?

2. Present and Future Value of Annuities and Annuities Due

3. A real estate investor receives ₹25,000 monthly from a rental property for 10 years. The
investor wants to sell the property now. If the market interest rate is 12% per annum,
compounded monthly, what is the present value of the property based on these cash flows?

4. You deposit ₹5,000 at the end of each month for 5 years into an account that earns 8% per
annum, compounded monthly. After 5 years, you reinvest the accumulated amount into
another account that earns 10% compounded semi-annually for 3 years. Calculate the total
future value at the end of 8 years.

3. Growth in Annuities and Perpetuities

5. A growing perpetuity pays ₹50,000 in the first year, and payments grow by 6% annually.
If the discount rate is 10%, calculate the present value of this perpetuity.

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6. A firm sets up a fund to pay annual scholarships starting at ₹1,00,000, growing at 5% per
year, for the next 20 years. The fund earns 8% per annum. How much should the firm invest
today to set up this fund?

4. Compound Interest and Continuous Compounding

7. An investor deposits ₹2,00,000 in an account offering 7% interest compounded

continuously. The investor plans to withdraw ₹1,00,000 after 3 years. How much will remain
in the account at the end of 5 years?

8. A corporate bond is priced at ₹1,500 today. The bond will pay ₹2,000 at maturity in 6
years. If the interest is compounded continuously, what is the implied annual yield?

5. Annual Percentage Rates (APR) and Effective Annual Rates (EAR)

9. A bank offers two loan options for ₹5,00,000:

 Option 1: APR of 7.5%, compounded monthly.

 Option 2: APR of 7.2%, compounded quarterly.
Calculate the EAR for both options and determine which one is more cost-effective.

10. A credit card company charges an APR of 24% on outstanding balances, compounded
daily. Calculate the EAR, and determine how much interest would accrue in 1 year if
₹50,000 remains unpaid throughout the year.

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