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    Problems - Time Value of Money

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    jobowo3828

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    Problems - Time Value of Money

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    jobowo3828
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    Original Title

    6. Problems - Time Value of Money

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    6 views1 page

    Problems - Time Value of Money

    Uploaded by

    jobowo3828

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    Time value of Money

    1. Mr. Vinay plans to send his son for higher studies abroad after 10 years. He expects the
    cost of these studies to be Rs. 10,00,000. How much should he save annually to have a
    sum of Rs. 10,00,000 at the end of 10 years, if the interest rate is 12%?
    2. At the time of retirement Mr. Jingo is given a choice between two alternatives: (a) an
    annual pension of Rs. 10,000 as long as he lives, and (b) a lump sum amount Rs. 50,000.
    If Mr. Jingo expects to live for 15 years and the interest rate is 15%, which option
    appears more attractive?
    3. You are looking for a housing loan and you have communicated to housing finance
    company that you can pay a maximum of Rs. 1,00,000 per annum as instalment, if
    maturity of the loan is 20 years and the interest charged by HFC is 9%, calculate the
    amount of loan you are eligible for?
    4. You are planning to take a loan of Rs. 50,00,000 for purchasing a new house. The bank
    is going to charge an interest of 9% and the tenor of the loan is going to be 20 years.
    What is going to be the annual instalment you are supposed to pay?
    5. Mr. Cool has just completed 40 years. He is planning to retire at the end of 60 years
    and expected to live for further 20 years. How much he needs to save every year in
    order to withdraw Rs. 100,000 at the end of every year from year 61 onwards in a
    manner that he does not leave any balance in his account at the end of his life. How will
    your answer change if he want to leave a sum of Rs. 50,00,000 for his children after he
    dies. The rate of return expected during this entire period is 10% per annum.
    6. Pipe India owns an oil pipeline which will generate Rs. 20 crore of cash flow in the
    coming year. It has a very long life with virtually negligible operating costs. The
    volume of the oil shipped, however, will decline over time and hence cash flows will
    decrease by 3% per year. The discount rate is 12%.
    7. An Oil well presently produces 100,000 barrels per year. It will last for 20 years more.
    However, the production will fall by 5% per year. Oil prices are expected to increase
    by 4% per year. The present price of a barrel of oil is $70. What is the present value of
    the well’s production if the discount rate is 15%?
    8. You want to buy a 285 litre refrigerator of Rs. 10,000 on an instalment basis. A
    distributor of various makes of refrigerators is prepared to do so. He states that the
    payments will be made in four years., interest rate being 13%. The annual payments
    would be as follows.
    Rs.
    Principal 10,000
    Four year interst@13% 5,200
    Annual payments 3,800
    What is the rate of return distributor is earning?
    9. Phonenix Company borrows Rs. 500,000 at an interest rate of 14%. The loan is to be
    repaid in 4 equal annual instalments payable at the end of each of the next 4 years.
    Prepare the loan amortization schedule.

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