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Assignment 1 - TVM

The document outlines various financial scenarios involving the Time Value of Money, including savings accumulation, retirement planning, loan repayments, and investment evaluations. It presents calculations for future values, present values, and required savings to meet specific financial goals under different interest rates. Each scenario provides a practical application of financial principles to help individuals make informed decisions about their money.

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rajitkumard
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Download as DOC, PDF, TXT or read online on Scribd
12 views

Assignment 1 - TVM

The document outlines various financial scenarios involving the Time Value of Money, including savings accumulation, retirement planning, loan repayments, and investment evaluations. It presents calculations for future values, present values, and required savings to meet specific financial goals under different interest rates. Each scenario provides a practical application of financial principles to help individuals make informed decisions about their money.

Uploaded by

rajitkumard
Copyright
© © All Rights Reserved
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Time Value of Money

1. You can save 20,000 a year for 5 years, and 30,000 a year for 10 years thereafter. What
will these savings cumulate to at the end of 15 years, if the rate of interest is 10
percent?
2. Mr. Vinay plans to send his son for higher studies abroad after 10 years. He expects the
cost of these studies to be 1,000,000. How much should he save annually to have a sum
of ₹ 1000,000 at the end of 10 years, if the interest rate is 12 percent?
3. On retirement, Mr. Jingo is given a choice between two alternatives: (a) an annual
pension of ₹ 100,000 as long as he lives, and (b) a lump sum amount of ₹ 650,000. If Mr.
Jingo expects to live for 15 years and the interest rate is 15 percent, which option is
more attractive?
4. You invested Rs. 100,000 as a lump sum investment at 9% rate of interest for 6 years.
You withdrew Rs. 20,000 at the end of 3 years and another 25,000 at the end of 5 years.
How much you will receive at the end of 6 years.
5. You decide to buy a flat which cost Rs. 15 lakh. Bank is ready to give you 80% finance
and rest needs to be paid by you. As you have only 1 lakh only, you deferred you
purchase for 3 years and deposits the amount in bank at 8% rate of interest. At the end
of year 1, you saved 50,000 and at the end of 2 you could save another 1 lakh. How
much amount you need to save in year 3 in order to have enough money to buy the flat.
6. You invest in a scheme where you agree to pay 10,000; 15000 & 20000 in the first 3
consecutive years and receive Rs. 8000, 10000 & 12000 in the next 3 years plus a
lumpsum amount at the end of 8 th year. If the offered rate of interest is 10%, how much
would you expect for a lumpsum bonus?
7. A company has issued debentures of Rs. 50 lakhs to be repaid after 7 years. How much
should the company invest at the end of each year which gives an interest of 12% p.a. in
order to redeem the debentures?
8. Hyderabad Grameena Bank (HGB) has various deposit schemes which offer the same
rate of interest of 8 percent per annum compounded quarterly. Mr. Charan deposited
Rs. 10,000 for 5 years. How much he would get after 5 years?
9. Calculate the present value of a bond that promises to pay interest of Rs. 150 every year
for next 10 years and Rs. 1,000 at maturity. The first interest payment is due after one
year from now. The required rate of return is 8% p.a.
10. Amit is planning for his retirement. At present his age is 35 years and he would like to
have Rs. 30,00,000 when he attains the age of 60. He wants to deposit a fixed amount of
money at the end of every year at 8% rate of interest in Public Provident Fund at SBI.
How much should Amit invest at the end of each year for the next 25 years in order to
obtain Rs. 30,00,000 at the end of that period?
11. Dev’s father wants to accumulate Rs. 5,00,000 in cash on his 21th birthday to fund his
higher education. Today is Dev’s 10th birthday. He wants to know two things:
(a) If he wants to make equal annual payments into a fund from now, how much will he
have to pay each year, if the fund pays 10% p.a. interest?
(b) If he decides to invest a lump sum in the fund now, how much should the lump sum
amount be?
12. You have come across the following investment opportunity: you will receive Rs. 2,000
at the end of every year for the next 5 years, plus Rs. 3,000 at the end of each year from
year 6 to year 9, plus Rs. 5,000 at the end of each year from year 10 to year 15. How
much will you be willing to pay for this investment now if your required rate of return is
12% p.a.
13. Mr. Raghu deposits Rs. 10,000 in a bank now. The interest rate is 10 percent and
compounding is done semi-annually. What will the deposit grow to after 10 years? If the
inflation rate is 8 percent per year, what will be the value of the deposit after 10 years in
terms of the current rupee?
14. A person takes a ₹10 lakh home loan from a bank at an annual interest rate of 10%, to
be repaid over 20 years through equal yearly payments. After making 10 years of
payments, they want to pay off the remaining balance in one lump sum. How much they
have to pay?
15. A company is considering an investment that will generate a cash inflow of ₹5 lakh per
year for 10 years, starting from the end of Year 3. The required rate of return is 12% per
annum. What is the present value of this investment today?

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