FINANCIAL MANAGEMENT

SUBMITTED BY
AMIR TAMANG
Q1. Now your age is 25 and you are retiring by 60. Then after Rs. 100,000 yearly up to your
80 year age. How much annual deposit you have to make up to your retiring age. Assume
that interest rate is 10%.
Ans:

Here at first we have to calculate the amount needed at the age of 60. We are given that

n= 20 years (because the age from 60 to 80 is 20 years)

r= 10%
R= 100,000 per year

We have,

PV of ordinary Annuity = R* 1-(1+i) ^ -n

i
= 100000* (1-(1+0.1) ^ -20 / 0.1
= Rs. 851,356.37
So Rs. 851,356.37 has to be in our account at the age of 60
Now let’s calculate, to make Rs. 851,356.37 at age of 60, how much we have to deposit yearly.
We know,

i= 10%
n= 35(60-25)

Now,
FVAn = PMT [((1 + i)n - 1) / i]
Or, 851356.37= PMT* {(1+0.1)^ 35 - 1} / 0.1
Or, PMT= 851356.37/ 271.02
Or, PMT= 3141.25
Therefore we have to deposit Rs 3141.25 each year till 60 from today to withdraw 100000 per
year from the age of 60 to 80.

Q2.Now you are learning MBA. Your trimester fee is Rs. 95000 which need to be paid at
the end of each trimester for year. Your parents are planning to make deposit a fund that is
sufficient enough for your trimester payment. How much deposit they have to make today?
Ans.
Here, Total MBA Trimesters (n) = 6
Trimester fee(R)= Rs. 95000
r = 10%/3 = 0.033
We know,
PV of Ordinary Annuity = R* 1-(1+i) ^ -n
I
= 95000* 1- (1+0.033) ^ -6
0.033
= 509051.5278
So Rs 50, 9051.5278 has to be deposited to today by parents to pay 95,000 trimester fee at the
end of trimester.
Q3. Evaluate cash flow assuming interest rate is 10%
A. Deposit 10000 for 30 years from today.
Ans. Here,
PMT= 10,000
n = 30 years
r = 10%
FVAn (Ordinary) = PMT [((1 + i) n - 1) / i]
= 10000* (1+0.1) ^ 30 – 1) / 0.1
= 1644940.227

A. Deposit 10000 for 15 years from the beginning of year 16

Here ,

PMT= 10000
n = 15( Beginning )
r = 10%

FVAn(Due) = PMT [((1 + i)n - 1) / i] * (1+i)

= 10000* [((1 + 0.1)15 - 1) / 0.1] * (1+0.1)

= 349497.2986
Evaluation:
Difference in FVAn between A and B = 1644940.227-349497.2986
= 1295442.928

Here the difference of 1295442.928 is due to difference in time i.e. of 15 years.