Basic CMPD calculations

1) If you invest Rs. 10,000 today at a compound interest of 10% p.a., what will be its future value after 10
years?
a) Rs. 25, 937
b) Rs. 23, 947
c) Rs. 20, 636
d) Rs. 22, 937

Ans: -
Method # 1: - Formula Method
FV = PV (1+r)n = 10000 (1+0.10)10 = 25, 937.4246.
Method # 2: - CMPD mode
● Set = Begin (Unless specified in the question or if it is a problem related to “loan” we shall stick
with Begin mode)
● n = 10 x 1 = 10 (‘n’ here signifies, “total payment periods” i.e. No. of years x no of annual
payments (n x P/Y).
● I% = 10% (ROI p.a.) (The ROI should always be taken in the p.a. basis irrespective of the annual
compounding)
● PV = - 10,000 (Cash outflow, so denoted with a “-ve” sign)
● PMT = 0
● FV = ? (Rs. 25, 937. 4246) (Cash Inflow, so automatically is denoted with a “+ve” sign)
● P/Y = 1 (‘P/Y’ here signifies, “no. of annual payments”. P/Y is used in case of “PMT”. If
payments (PMT) are made monthly, quarterly, semiannually and annually; P/Y would be 12, 4, 2,
1 respectively).
● C/Y = 1 (‘C/Y’ here signified, “no. of annual compounding”. If the compounding takes place
monthly, quarterly, semiannually and annually; C/Y would be 12, 4, 2, 1 respectively).

2) What is the future value of Rs.80, 000 in next 12 years, at a compounding of 11%?
a) 280,685
b) 279,876
c) 260,897
d) 238,068

Ans: -
CMPD mode
● Set = Begin
● n = 12
● I% = 11
● PV = - 80000 (Cash Outflow, so indicated with a “-ve” sign)
● PMT = 0
● FV = ? (279876)
● P/Y = 1
● C/Y = 1

3) What is the Present Value of Rs. 10,000 receivable after 6 years if the rate of discount is 10%.
a) - 5,465
b) - 5, 675
c) - 5, 645
d) - 6,000
Ans: -
Method # 1: - Formula Method
PV = FV = 10000 = 5,644.739301.
(1+r)n (1.10)6
Method # 2: - CMPD mode
● Set = Begin (unless otherwise specified or in case of loan calculations)
● n = 6 x 1 = 6 (i.e. n x P/Y = 6 x 1)
● I% = 10
● PV = ? (- 5,644.739301) (Cash Outflow, so automatically denoted as “-ve”)
● PMT = 0
● FV = 10000 (Cash Inflow, therefore “+ve”)
● P/Y = 1
● C/Y = 1

4) How many years (approx.) will it take for a sum of Rs.10000 to quadruple if the rate of return is 9%
p.a.?
a) 18
b) 16
c) 14
d) 12

Ans: -
CMPD mode
● Set = Begin
● n = ? (16.0864)
● I% = 9%
● PV = - 10,000 (Cash Outflow, therefore ‘’-ve”)
● PMT = 0
● FV = 40,000 (Cash Inflow, therefore “+ve”)
● P/Y = 1
● C/Y = 1

5) Bhairavi expects to receive Rs.10,000 from a trust fund in years' time, if the current
value of the fund is Rs. 6663 and earns interest at 7 % p.a. ?
a) 5
b) 6
c) 7
d) 8

Ans: -
CMPD mode
● Set = Begin
● n = ? (6)
● I% = 7%
● PV = - 6,663 (Cash Outflow, therefore ‘’-ve”)
● PMT = 0
● FV = 10,000 (Cash Inflow, therefore “+ve”)
 ● P/Y = 1
● C/Y = 1

6) Someone promises to give you Rs. 5,000 after 10 years in exchange for Rs. 1,000 today. What is the
interest rate offered to you?
a) 14.76%
b) 17.46%
c) 16.47%
d) None of the above
Ans: -
CMPD mode
● Set = Begin
● n = 10 x 1 = 10 (i.e. n x P/Y)
● I% = ? (17.46%)
● PV = -1000
● PMT = 0
● FV = 5000
● P/Y = 1
● C/Y = 1

7) The IDBI deep discount bond offers an investor Rs. 50,000 after 20 years, for an initial investment of
Rs. 9,500. The interest rate implied in the offer is?
a) 8.65%
b) 6.85%
c) 9.12%
d) 8.95%

Ans: -
CMPD mode
● Set = Begin
● n = 20 x 1 (i.e. n x P/Y)
● I% = ? (8.65%)
● PV = - 9500 (Cash Outflow, so indicated with a “-ve” sign)
● PMT = 0
● FV = 50000 (Cash Inflow, so indicated with a “+ve” sign)
● P/Y = 1
● C/Y = 1

CMPD sums with p/y & c/y & pmt

8) If Rs. 1,00,000 becomes Rs. 1,50,000 in 2.5 years when compounding is done semi annually, find the
annualized rate of return.
a) 16.89%
b) 16.50%
c) 15.95%
d) 16%

Ans: -
 CMPD mode
● Set = Begin
● n = 2.5 x 1 = 2.5 (i.e. n x P/Y)
● I% = ? (16.89%)
● PV = -100000 (Cash Outflow, so indicated with a “-ve” sign)
● PMT = 0
● FV = 150000 (Cash Inflow, so indicated with a “+ve” sign)
● P/Y = 1
● C/Y = 2 (Compounding is done semi annually)

9) Your client deposits Rs. 5,00,000 on retirement in a bank which pays interest @ 10% p.a. being
compounded semi annually. How much can be withdrawn every year for a period of 10 years?
a) 80,242.58
b) 80,534.20
c) 74, 601.95
d) 40,121.29

Ans: -
CMPD mode
● Set = Begin
● n = 10 x 1 = 10
● I% = 10
● PV = - 500000 (Cash Outflow, so designated with a “-ve” sign)
● PMT = ? (74,601.95181) (Cash Inflows, automatically designated with a “+ve” sign)
● FV = 0
● P/Y = 1 (withdrawal done once a year; therefore P/Y =1)
● C/Y = 2 (compounded done semi annually)

10) Mihir has taken a loan of Rs. 25, 00,000 from his employer for purchase of a flat at 10%
compounded monthly for a period of 20 years. Compute the amount of Equated
Monthly Instalment (EMI)?
a) 24,125
b) 25,374
c) 26,789
d) 27,987

Ans: -
CMPD mode
● Set = End
● n = 20 x 12 = 120
● I% = 10
● PV = 2500000 (Cash Inflows, automatically designated with a “+ve” sign)
● PMT = ? (-24125.54)
● FV = 0
● P/Y = 12 (EMI is paid every month; therefore P/Y =1)
● C/Y = 12 (compounded done monthly)

11) Geeta invests Rs.2000 at the end of each month for 48months.Her rate of return is 8%
p.a. compounded monthly.The investment’s value at the end of the said period will amount to
 .

.
a) 1,10,000
b) 1,12,700
c) 1,15,000
d) 1,11,500

Solution:- S=E, Pmt = –2000,n=48,i=8,FV=?,p/y=12,c/y=12

12) John has an investment with current value of Rs.6, 000.Over that he also wishes to save
Rs.100 every year. If the value of the market is expected to rise toRs.7200 by three years, the
approximate yield on the investment is %
a) 7.25
b) 7.58
c) 4.62
d) 8.02

Solution: PV= -6000, n=3, Pmt= -100,FV = 7200,Set =

Beg ,i =?

2 step sums/Advance calculations

13) Kaniska invested Rs.4,00,500 into a deposit for10 years at 9.5%p.a.For the first 5 years the
bank pays semi-annual compounding interest and fort he next 5 years compounding is
quarterly.Compute the accumulated amount to be received by Kaniska after a period of 10years?
a) 1078690
b) 1018640
c) 1007865
d) 1056780

Solution:
Step1,
n=5*2, i= 9.5,PV= -400500,
FV=?=637005,p/y=2,c/y=2
Step2,
n= 5*4,i =9.5,PV=-637005,FV= ?,p/y=4,c/y=4
14) Harvender has invested Rs.3,56,000 into a fund for long term,i.e.for 13yearsat10.25%
p.a. The issuer pays him interest compounded monthly for the first 7 years and compounded
quarterly for the next 6years.How much can he withdraw after 13years to meet his goal of
higher study of his son?

a) 1334932
b) 1367809
c) 1457087
d) 1245870

Solution:
Step1,
PV= -356000, n= 7, i=10.25/12,
FV=?=727332,p/y=12,c/y=12
Step2,
PV=727332, n=6*4,i =10.25,
FV=?,p/y=4,c/y=4

15) You area CFP and a client tells you that he wants to put aside so me money to buy his
daughter a Rs.8,000 motor cycle when she graduates in 4 years.You can assume 6%annually for
the first 2years and 8%p.a. compounded semi annually on the last two years. What should he
deposit?

a) 6075.86
b) 6086.17
c) 6104.23
d) 6093.88

Solution:

Step1,
FV=8000,n=2*2,i=8,PV=?=6838.43,p/y=2,c/y=2
Step2,
FV=6838.43,n=2,i=6,PV=?
16) An income stream provides Rs.2,000 for the first 3years and Rs.3,000 for the next 3years.If
interest rate is 14% per annum,how much money should be taken in lieu of the above payments
or computer the present value of the income stream?

a) 4643
b) 6964
c) 4701
d) 10652

Solution: Step1,
Present value of income stream for 1st3years:
Pmt =2000,n =3, i= 14,PV=?= -5293 (1)
Step2,
Present value of income stream for the next 3 years:
Pmt =3000, n= 3, i = 14,PV=?= -7939
Step3,
FV=6964.89,n =3, i=14,PV=?

17) The cost of a one-month trip to Australia is Rs.3,50,000 in today'sterms.Rahul wishes to

make aone-month trip to this beautiful country after 3 years. Cost of the trip is increasing by 5%
every year.Rate of return on investment is 12%p.a .How much money will her equire in order to
make this trip after 3years and how much should he invest now at annual compounding in order
to make this dream a reality?

a) 277568
b) 288391
c) 234768
d) 247967

Solution::Step1, To find the cost of the trip after 3 years,

PV=-350000,n=3,i=5,FV=?405168
Step2, FV=405168, n= 3,i=12,PV =?

18) Seema is 14years old and she is very intelligent and good in studies. She plans to pursue an
engineering degree course from Australia.For this the amount requiredis Rs.8,00,000 in today's
terms which willin crease @6% p.a. and the amount is required after 5years.How much per
quarter should her father start saving f rom now on if the rate of return on investment is expected
to be 9%p.a.compoundedquarterly?
a) 45980
b) 47687
c) 42029
d) 46985

Solution: In this case, we first have to find the amount required by Seema after 5 years and
then determine the amount of quarterly savings required by her father.
Stepl,
PV = -800000, i= 6, n=5,FV =?= 1070580.46
Step2,
We have to compute quarterly PMT required to be saved for 20 quarters
@ 2.25%perquarter.
FV= 1070580.46, n=20, i = 2.25,Pmt = ?= 42029.65
He will have to save Rs. 42029.65 every

19) Robert expects to receive an annual payment of Rs.2,50,000 from an inheritance fund at the
beginning of the year for 8years.What is the current worth of this fund assuming the fund is
invested earning an annual rate of return 8.25% and the first payment will only be made 5years
from now?
a) 1028013
b) 1036413
c) 1048073
d) 1049027

Solution:
StepI,
Pmt =250000,Set= Begin, n=8,
i =8.25,PV= ?= -1540537.48
StepII,
FV=1540537.48, n =5, i=8.25,PV=?

20) Mr.Shailesh deposited Rs.10000 in a Bank FD for 5years earning 9%interest.What would be
the maturity amount?
a) 15386
b) 17790
c) 13786
d) 13344

Solution : PV= -10000,n=5, i=9, FV =?

21) For an investment product guaranteeing a fixed cash flow of Rs. 4.00 Lakh per annum for 20 years
after four years from the date of investment (start of every year), what price should be fixed if the same
can be invested in financial instruments which can yield 8.25 % p.a. for the four years and 7.5% p.a. for
the remaining period of the product?
a) Rs. 29,69,709
b) Rs. 31,92,437
c) Rs. 26,90,769
d) Rs. 32,19,473

ANS:
Step 1: BGN, N= 20, I= 7.5%, Pmt = 400,000, PV= Solve (-43,83,631), P/y= 1, C/y= 1
Step 2: BGN, N= 4, I= 8.25%, PV= Solve (-31,92,437), FV= 43,83,631, P/y= 1, C/y= 1

FVGA
22) A 30 year old employee is currently earning an annual salary of Rs 300,000. He will start saving 10%
of his salary at the end of each year in a savings plan yielding 8% p.a. His salary increases by 5%pa.What
accumulated amount would he be having on his retirement at age 60?
a) Rs. 57,40,715
b) Rs. 59,00,000
c) Rs. 62,00,000

ANS:
Use Future value of growing annuity (FVGA) formulae for End mode calculation:
As the investment is taking place at the END of each year.
Amount (1st Year Saving) * [(1+R) ^ n - (1+G) ^ n] / (R – G)
R – Required rate of return
G – Growth rate in salary

30,000 * [(1.08) ^ (30) – (1.05) ^ (30)] / (0.08 – 0.05)

= Rs. 57,40, 715

23) In the above case, if the investment are taking place at the start of the year. What accumulated amount
would he be having on his retirement at age 60?
a) Rs. 57,40,715
b) Rs. 59,00,000
c) Rs. 62,00,000

ANS:
As the investment is taking place at the BGN of each year. Formulae for FVGA will be as follow:
[Amount (1st Year Saving) * [{(1+R) ^ n - (1+G) ^ n} / (R – G)] * (1+R)

Home equity
24) Mr. A purchased a flat worth Rs. 50 lakh in January 2007 by availing a housing loan of Rs. 35 lakh for
tenure 15 years at the rate of 9% p.a. The value of his flat as in January 2013 has appreciated to Rs. 90
lakh. What approximate value of home equity can he consider in his flat towards his unencumbered
interest after also setting aside 15% of the appreciation value towards taxes and other costs to be
discharged on selling the unit?
a) Rs. 49 lakh
b) Rs. 74.56 lakh
c) Rs. 57.79 lakh
d) Rs. 63.79 lakh

Step 1: Calculate EMI (CMPD) Step 2: Calculate O/s liability (AMRT)

Set = End Set = End

n = 15 x 12 = 180 (i.e. n x P/Y) PM1 = 1
I% = 9 PM2 = 6*12 = 72
PV = 35,00,000 n = 15 x 12 = 180 (i.e. n x P/Y)
PMT = ? (35,499) I% = 9
FV = 0 PV = 35,00,000
P/Y = 12 PMT = ? (35,499)
C/Y = 12 FV = 0
P/Y = 12
C/Y = 12
Bal = ? (2621249)

Step 3: Calculate 15% of appreciation value

= (9000000-5000000)*15%
= 6,00,000

Step 4: Home Equity

Home Equity = Current market value – Outstanding value – 12% of Appreciation value
= 90,00,000 – 26,21,249 – 6,00,000
= 57,78,751

25) Mr. Avinash purchases a flat at Rs 35 lakhs in Oct 2006. A loan of Rs 20lakhs for 15yrs@ 8.5% pa,
registration 2 lakhs, statutory expense and furniture Rs 3 lakhs. The value increases in Oct 2012 at Rs 80
lakhs. What value flat towards his unencumbered interest after setting aside 12% of the appreciation value
towards tax and other cost to be discharged on selling unit.
a) 60 lakhs
b) 69 lakhs
c) 65 lakhs
d) 55 lakhs
Home equity: It is nothing but the current market value of a home minus the outstanding mortgage
(Loan) balance.

Step 1: Calculate EMI (CMPD) Step 2: Calculate O/s liability (AMRT)

Set = End Set = End

n = 15 x 12 = 180 (i.e. n x P/Y) PM1 = 1
I% = 8.50 PM2 = 6*12 = 72
 PV = 20,00,000 n = 15 x 12 = 180 (i.e. n x P/Y)
PMT = ? (19694) I% = 8.50
FV = 0 PV = 20,00,000
P/Y = 12 PMT = -19694
C/Y = 12 FV = 0
P/Y = 12
C/Y = 12
Bal = ? (1483113.7)
Step 3: Calculate 12% of appreciation value

= {8000000-(35,00,000+200,000+300,000)}*12%
= 480,000

Step 4: Home Equity

Home Equity = Current market value – Outstanding value – 12% of Appreciation value
= 80,00,000 – 14,83,113 – 4,80,000
= 60,36,887

26) An individual has recently purchased a house worth Rs. 40 lakh for self-occupation by availing
housing loan of Rs. 28 lakh at 9.25% p.a. rate of interest. The tenure of loan is 18 years. He has Rs. 12
lakh financial assets at present. He is expected to save annually Rs. 2 lakh which he invests on a quarterly
basis beginning a quarter from now in an instrument which is expected to provide return of 9% p.a. What
would be his net worth five years from now? The value of the house which is for consumption purposes is
not considered in the net worth so arrived.
a) Rs. 2.83 lakh
b) Rs. 18.82 lakh
c) Rs. 6.68 lakh
d) Rs. 7.36 lakh

Ans:
Net worth = Assets – Liabilities

Step 1: Calculate Assets

Set = End
n = 5 x 4 = 20 (i.e. n x P/Y)
I% = 9
PV = - 12,00,000
PMT = - (2,00,000/4)
FV = ? 30,82,962
P/Y = 4
C/Y = 1

Step 2: Calculate EMI Step 2: Calculate O/s liability (AMRT)

Set = End Set = End

n = 18x 12 = 216 (i.e. n x P/Y) PM1 = 1
I% = 9.25 PM2 = 5*12 = 60
 PV = 28,00,000 n = 18x 12 = 216 (i.e. n x P/Y)
PMT = ? (26659) I% = 9.25
FV = 0 PV = 28,00,000
P/Y = 12 PMT = ? (26659)
C/Y = 12 FV = 0
P/Y = 12
C/Y = 12
Bal = ? (2414624)

Therefore, Net worth = Assets – Liabilities

= 3082962-2414624
= 668,338

27) Mr. A purchased a second house worth Rs. 60.00 lakhs through a 15 years loan of
Rs.40.00 Lakhs with a interest rate of 9.5% p.a. Towards payment of own funds he has
liquidated part of Rs. 35.00 Lakhs of financial assets. He saves Rs. 3.00 Lakhs every year
from his income. He immediately rent out his new house at Rs.22,000 per month of which
he incurs cost of 20% towards maintainces and taxes . The saving and net rent and after
paying for EMI are invested at quarterly interval from next quarter. Considering growth of
8% for investment and real estate prices. What would be his Net Worth after five years
from now. Excludes his dwelling unit from net worth calculation.
(Ans: Rs.78.52 Lakhs)

Solution:
Net worth = Assets – Liabilities
Cost of Second House 6,000,000.00
Less: Loan Amount 4,000,000.00
Shortfall 2,000,000.00
Less: Self Funding 2,000,000.00

Current Value of Investments 3,500,000.00

Less: Redemption for House Purchase 2,000,000.00
Balance amount in Investment 1,500,000.00

Monthly Cashflow

{END, N=15*12, I=
9.5, PV=4000000,
PMT= Solve , P/Y=
Monthly EMI on Home Loan 41,768.9873 12, C/y= 12}
Less: Monthly Rental Income
(After deducting 20% for Taxes and
Maintainces) 17,600.00 {22000*80%}
Shortfall in payment 24,168.9873
Less: Monthly saving from Income {300,000 p.a /12
(As per question language) 25,000.00 month}
Monthly Saving after paying EMI 831.0127

Finding Out Loan amount Outstanding after 5 years from now

Step 1: To calculate Monthly EMI

{END, N=15*12, I=
9.5, PV=4000000,
PMT= Solve , P/Y=
Monthly EMI on Home Loan 41,768.99 12, C/y= 12}

Step 2: Use AMRT function to determine Balance amount

PM1 1
PM2 60 {5*12}

Balance (Solve) : O/s Liability After 5 Years (B) 3,227,957.94

Finding Out FV of current Invt and Monthly Saving after 5 years from now

{END, N=5*4, I= 8,
PV=-1500000, PMT= -
831.01*3, FV= Solve,
Investment (A) 2,264,221.69 P/Y= 4, C/y= 1}

Finding Out FV of second house after 5 years from now

2nd House: Will be considered for Networth

calculation.
{1st house or self occupied house will not {BGN, N=5, I= 8, PV=-
be considered for Networth calculation} 60,00,000, FV= Solve,
(B) 8,815,968.46 P/Y= 1, C/y= 1}

Total Value of Assets (A + B) 11,080,190.16

{1,10,80,190.16 -
sss 78,52,232.22 32,27,957.94}

Loan Numericals
28) Avinash pays his mortgage of Rs. 12,00,000 for 15 years at an interest rate of 7% p.a. Avinash makes
his payment on monthly basis. What is the total amount of interest Avinash will pay over the term of the
mortgage?
a) Rs. 6,47,000
b) Rs. 7,76,300
c) Rs. 7,30,200
d) Rs. 7,41,480
Ans:-

Method # 1: - CMPD mode

Calculations of EMI paid Calculation of Total Interest paid over the
term of the mortgage

Set = End (loan numerical)
n = 15 x 12 = 180 (i.e. n x P/Y)
I% = 7
PV = 12,00,000 (Cash Inflow, so “+ve”)
PMT = ? (- 10,785.93925) (Cash Outflow, so “-
ve”)
FV = 0
P/Y = 12 (payments made on monthly basis)
C/Y = 12 (monthly compounding)
Total amount paid over the life of the loan
= (Rs. 10,786 x 12 months) x 15 years
= Rs. 19,41,480
Total Interest paid over the life of the loan
= Rs. 19,41,480 - Rs. 12,00,000 (Amount of
loan)
= Rs. 7,41,480

Method # 2: - AMRT Function

● Set = End
● PM1 = 1 (where “PM1” stands for “No. of Payments - starting point of the payment period asked
in the question”)
● PM2 = 180 (where “PM2” stands for ”No. of Payments - ending point of the payment period
asked in the question”)
● n = 180
● I% = 7
● PV = 12,00,000
● PMT = - 10,785.93925
● FV = 0
● P/Y = 12
● C/Y = 12

Σ𝐈𝐈𝐈= Solve = - 7,41,469.065

29) In the above question, Avinash wants to know after paying 5 years of EMI what is the status of this
Loan taken with regards to following?

I. Total interest paid so far.

II. Total Principal Amount paid so far
III. Balance outstanding after completing 5 years

Ans:-
I. Total interest paid in last 5 years
Method - AMRT Function
● Set = End
● PM1 = 1 (where “PM1” stands for “No. of Payments - inception of payments”)
● PM2 = 60 (5*12) (where “PM2” stands for ”No. of Payments - last payment that will be paid”)
● n = 180
 ● I% = 7
● PV = 12,00,000
● PMT = - 10,785.93925
● FV = 0
● P/Y = 12
● C/Y = 12

Σ𝐈𝐈𝐈= Solve = -3,76,109 (The Answer indicate interest amount paid so far on the loan taken)

II. Total Principal amount in last 5 years

Method - AMRT Function
● Set = End
● PM1 = 1 (where “PM1” stands for “No. of Payments - inception of payments”)
● PM2 = 60 (5*12) (where “PM2” stands for”No. of Payments - last payment that will be paid”)
● n = 180
● I% = 7
● PV = 12,00,000
● PMT = - 10,785.93925
● FV = 0
● P/Y = 12
● C/Y = 12

Σ𝐈𝐈𝐈= Solve = -2,71,046.37 (The Answer indicate amount paid towards the principal portion of
loan taken)

III. Balance outstanding after 5 years

Method - AMRT Function

● Set = End
● PM1 = 1 (where “PM1” stands for “No. of Payments - inception of payments”)
● PM2 = 60 (5*12) (where “PM2” stands for”No. of Payments - last payment that will be paid”)
● n = 180
● I% = 7
● PV = 12,00,000
● PMT = - 10,785.93925
● FV = 0
● P/Y = 12
● C/Y = 12

Bal = Solve = -9,28,953.62 (The Answer indicate amount outstanding towards the principal portion
of loan taken)

30) Ms. Akansha is 28 years old, working in an IT company. She refinanced her housing loan from a
public sector bank for which she incurred a cost of 2.5% on her previous mortgage amount balance and
the same was paid separately. The previous loan balance was Rs. 12,50,000. If she’ll be paying an EMI of
Rs. 12,270 per month for a period of 20 years, calculate what annualized rate of interest is charged from
her?
a) 10.25%
b) 9.90%
c) 12.00%
d) 11.30%

Ans: -
New Loan Balance = Previous Balance
New Loan Balance = 12,50,000

CMPD mode
● Set = END
● n = 20 x 12 = 2400 (i.e. n x P/Y)
● I% = ? (10.2493%)
● PV = 12,50,000 (Cash Inflow, so “+ ve”)
● PMT = - 12,270
● FV = 0
● P/Y = 12 (Payments are made on monthly basis, so there’ll be 12 payments in a year)
● C/Y = 12 (Compounded monthly)

Note: Processing fees of 2.5% of loan amount will be paid by client separately and it will not add in the
loan amount.

31) Mr. A had taken loan of Rs 30lakhs in July 2010 at floating rate of interest of 10.25% pa tenure 20yrs
from company. They increased interest rate to 11% from 1 st Jan 12. He contacts a bank which offers a
refinance of loan @ 10.5%, along with it bank charges 1% processing fee of loan sanctioned. What
amount he should save if the outstanding loan amount as the end march 2012 is refinanced so as to
terminate as per original tenure.
a) Rs 181,107
b) Rs 366,692
c) Rs 273,795
d) Rs 144,683

Ans:
Step 1: Calculate EMI as on Step 2: Calculate O/s liability Step 3: Calculate EMI as on
1/7/2010 (CMPD) as on 1/1/2012(AMRT) 1/1/2012 (CMPD)

Set = End Set = End Set = End

n = 20 x 12 = 240 (i.e. n x P/Y) PM1 = 1 n = 240-18 = 222
I% = 10.2 PM2 = 18 I% = 11
PV = 30,00,000 n = 20 x 12 = 240 (i.e. n x P/Y) PV = 2925929
PMT = ? (29449.30) I% = 10.2 PMT = ? (30896.14)
FV = 0 PV = 30,00,000 FV = 0
P/Y = 12 PMT = -29449.30 P/Y = 12
C/Y = 12 FV = 0 C/Y = 12
P/Y = 12
C/Y = 12
Bal = ? (29,25,929)

Step 4: Calculate O/s liability Step 5: Calculate EMI as on Step 6: Calculate Processing
as on 31/3/2012(AMRT) 31/3/2012 (CMPD) fee cost

Set = End Set = End Answer of Step 4 i.e.

PM1 = 1 n = 240-18-3 = 219 29,13,591*1% = Rs. 29,135
PM2 = 3 I% = 10.5
n = 240-18 = 222 PV = 29,13,591
I% = 11 PMT = ? (29936.30)
PV = 2925929 FV = 0
PMT = -30896.14 P/Y = 12
 FV = 0 C/Y = 12
P/Y = 12
C/Y = 12
Bal = ? (29,13,591)

Step 7: Compare outflows

a. Original bank = 30896.14806*219 = 6766256.425
b. New bank = (29936.13453*219) + 29135 = 6585149.378
c. Savings i.e. (a-b) = 6766256.425-6585149.378 = 181107.0466

32) Mr. A had taken a loan of Rs. 40 lakh in July 2010 at a floating rate of interest of 10% p.a for tenure
of 20 years from a housing finance company. The company sent a notice raising the interest rate to
10.75% p.a. effective January 2012 thereby increasing EMI. He decides to refinance the loan at 10.25%
from a bank which charges a processing fee of 1% of loan sanctioned. What absolute amount he stands to
save in the remaining tenure if the outstanding loan amount as at end of March 2012 is refinanced so that
the new loan terminates as per original tenure?
a) Rs. 3,60,948
b) Rs. 1,92,266
c) Rs. 4,90,240
d) Rs. 2,39,401
Ans:

Step 1: Calculate EMI as on Step 2: Calculate O/s liability Step 3: Calculate EMI as on
1/7/2010 (CMPD) as on 1/1/2012(AMRT) 1/1/2012 (CMPD)

Set = End Set = End Set = End

n = 20 x 12 = 240 (i.e. n x P/Y) PM1 = 1 n = 240-18 = 222
I% = 10.75 PM2 = 18 I% = 10.75
PV = 40,00,000 n = 20 x 12 = 240 (i.e. n x P/Y) PV = 38,98,160
PMT = ? (38601) I% = 10.2 PMT = ? (40516)
FV = 0 PV = 40,00,000 FV = 0
P/Y = 12 PMT = -38601 P/Y = 12
C/Y = 12 FV = 0 C/Y = 12
P/Y = 12
C/Y = 12
Bal = ? (38,98,160)

Step 4: Calculate O/s liability Step 5: Calculate EMI as on Step 6: Calculate Processing
as on 31/3/2012(AMRT) 31/3/2012 (CMPD) fee cost

Set = End Set = End Answer of Step 4 i.e.

PM1 = 1 n = 240-18-3 = 219 38,81,226*1% = Rs. 38,812
PM2 = 3 I% = 10.25
n = 240-18 = 222 PV = 38,81,226
I% = 11 PMT = ? (39,245)
PV = 2925929 FV = 0
PMT = -30896.14 P/Y = 12
FV = 0 C/Y = 12
P/Y = 12
C/Y = 12
Bal = ? (38,81,226)
Step 7: Compare outflows
a. Original bank = 40516*219 = 8,872,908
b. New bank = (39245*219) + 38812 = 8,633,507
c. Savings i.e. (a-b) = 88,72,908-8,633,507 = 239401

33) Mr. B bought the house by availing a housing loan of rs 25 lakh for 15 yrs at a variable rate of interest.
The initial rate was 8.5% & the fixed EMI was in May 2008. The finance company raise the rate to 9.25%
pa effective from EMI due on April 2009. The finance company retain the same EMI but increased the
outstanding tenure. Mr. B received a bonus of rs 2.5 lakh from her employer in May 2010. What amount
she should prepare to invest to bring back tenure to original contract period with effect from June 2010?
a. 75,814
b. 111,215
c. 78,681
d. 109,543

Solution:
1. EMI as on May’2008

Particulars May’08

Set End

N 15*12

i 8.5
Pv 25,00,000

Pmt (Solve) -24618.48895

Fv 0
P/y 12

C/y 12

2. Outstanding loan as on April’09

Particulars April’09
Set End

N (15*12)-11

i 8.5

Pv (Solve) 24,21,238.182

Pmt -24618

Fv 0
P/y 12
C/y 12

3. Revised tenure with 9.25% interest

Particulars April’09

Set End

N (Solve) 184.8346

I 9.25

Pv 24,21,238

Pmt -24618

Fv 0

P/y 12

C/y 12

4. Outstanding loan as on May’10

Particulars May’10

Set End

N 185-14
I 9.25

Pv (Solve) 2334654.2

Pmt -24618

Fv 0
P/y 12

C/y 12

5. Necessary outstanding loan amount so as to keep emi constant and revive original tenure

Particulars May’10

Set End

N (15*12)-11-14

I 9.25
 Pv (Solve) 2222347

Pmt -24618

Fv 0

P/y 12

C/y 12

6. therefore amount to be repaid back = 2334654.2-2222347 = 112,307

Perpetuity

34) A person wants to earn Rs. 60,000 p.a. at the end of every year, when the interest rate is 6%. What is
the capital required?
a) Rs. 10,00,000
b) Rs. 5,00,000
c) Rs. 6,00,000
d) Rs. 7,00,000

CMPD Mode Perpetuity Method

Set = End Capital Required = Annual PMT

n = 100 (assumed) (‘n x P/Y’ is a very large no.) i% p.a.
I% = 6
PV = ? (- 9,97,052.7738) (Cash Outflow, (Formulae based on End mode cash flow)
so “- ve”) (The answer in this method will Capital Required = Rs. 60,000
always be an approximate answer) 0.06
PMT = 60,000 (Cash Inflow, so “+ve”) (will
always be annually in case of ‘perpetuity’ Capital Required = Rs. 10,00,000
calculations)
FV = 0
P/Y = 1
C/Y = 1

35) If you want to earn Rs. 100,000 p.a at the start of the every year, what is the capital required @ 8%?
a) Rs. 13,50,000
b) Rs. 15,00,000
c) Rs. 12,50,000
d) Rs. 17,50,000

CMPD Method Perpetuity Method

Set = BGN Capital Required = Annual PMT * (1+I )

n = 100 (assumed) (‘n x P/Y’ is a very large no.) I% p.a.
I% = 8 (Formulae based on BGN mode cash flow)
PV = ? (- 13,49,386) (Cash Outflow,
so “- ve”) (The answer in this method will Capital Required = Rs. 1,00,000 * (1+0.08 )
 always be an approximate answer) 0.08
PMT = 1,00,000 (Cash Inflow, so “+ve”) (will
always be annually in case of ‘perpetuity’ Capital Required = Rs. 13,50,000
calculations)
FV = 0
P/Y = 1
C/Y = 1

36) A research organization instituted scholarship amounting to Rs. 10 Lakh / year (End of each year) on
a perpetual basis 3 years ago. They set aside a designated corpus for the same in investment yielding
7.5% pa. They want to raise the amount of annual scholarship by Rs. 5 Lakh per annum while the
expected annual yield depressed by 1%. What additional funds need to be infused in the corpus? (End
mode to be used)
(Ans: - Rs. 9743590)

Solution : Use Perpetuity formuale

Step 1: 10,00,000 / 7.5% = Rs. 1,33,33,333 /- Capital Required

Step 2: 15,00,000 / 6.5% = Rs. 2,30,76,923 /-Capital Required
Difference in amount = Rs. 97,43,590

Additional sums-Advance sums

36) A client has a car loan of 10 lakhs with an EMI of 21494/m @ 10.5% and 2 years left for the loan. He
also has a personal loan of 3.2 lakhs with an EMI of 11569/m @ 18% and 2 years left. He receives a
sudden inflow of 7 lakhs which he can put in 10% FD for 2 years. Will you advice to repay the loan &
invest the EMI systematically every month in a tax efficient instrument @ 9%?
a) Yes the accumulated amount after 2 years would be more by atleast 20,000 with lower tax than
FD
b) No, FD maturity will be 8,47,000 against total outflow of 7,93,500 in 2 years in loan
c) No the FD interest would be 1,47,000 where as he may save 98,000 in interest
d) Not nice to leave 10% for 9%

Ans:

A) Calculate outstanding loan amount for Car & Personal Loan

Step 1: Car Loan Step 2: Personal Loan

Set = End Set = End

n = 2 x 12 = 24 (i.e. n x P/Y) n = 2 x 12 = 24 (i.e. n x P/Y)
I% = 10.50 I% = 18
PV = ? 463472.0696 PV = ? 231731
PMT = - 21494 PMT = -11569
FV = 0 FV = 0
P/Y = 12 P/Y = 12
C/Y = 12 C/Y = 12
Therefore, total outstanding loan = 463472+231731 = 695203

B) Analysis of both options

Step 3: Option A: Repay both the loans and Step 4: Option B: Invests Rs. 7lac’s in FD
invest EMI’s

Windfall – outstanding loan = investment Set = End

amount n=2
700000 – 695203 = 4796 I% = 10
PV = -700000
Set = Begin PMT = 0
n = 2 x 12 = 24 (i.e. n x P/Y) FV = ? 847000
I% = 9 P/Y = 1
PV = -4796 C/Y = 1
PMT = -(21494+11569)
FV = ? 874810.68
P/Y = 12
C/Y = 1

Option A is more profitable, hence, would advice to Repay both the loans and invest the EMI’s

37) Mr. A has a gross salary of Rs 9,00,000 of which he saves 30% which includes EPF deduction, PPF
and monthly systematic investment in long term mutual fund scheme. Another 30% goes towards
servicing of housing and car loans and taxes. His Financial Planner advises him accumulate 6 month
household expenses in liquid funds. He changes job and expects immediate rise of 20% in his gross
income. You estimate that other heads would not change materially except his household expenses which
would rise by 5% due to child education. How many months he would take to accumulate liquid reserves?
a) 14 months
b) 13 months
c) 25 months
d) 11 months

Ans:

EPF/PPF/Monthly investments = 900,000*30% = 270,000

Loan Serving = 900,000*30% = 270,000
Balance Household Exps (100-30-30) = 900,000*40% = 360,000
Revised Cash Flow:
Salary income = 900000*1.20 = 10,80,000
Investments and loan amount no change
Household: 360000*1.05 = 378,000
Amount to be invested in liquid fund = 378000 – 12 months therefore for 6 months = (378000*6)/12 =
189,000
Balance amount available (1080000-378000-270000-270000)=162000
Rs. 162000 accumulated in 12 months therefore, months required to accumulate Rs 189000 =
(189000*12)/162000 = 14 months.

Asset Allocation
38) Your client starts investing immediately for 10 years annually Rs. 60,000 in the ratio of 80:20 in equity
and debt products. You expect return from equity and debt to be 11.75% p.a. and 8.25% p.a. respectively
during this period. What will be his portfolio value after 10 year?
a) 11,20,439
b) 12,05,000
c) 11,05,916
d) 10,22,650
ANS:
Asset Allocation Amount Return On Investment
Equity 80.00% 48,000 11.75%
Debt 20.00% 12,000 8.25%
Total 100.00% 60,000

Step 1: Finding out Future value of regular investment (Based on asset allocation)
As per question, annual investment of Rs.60, 000 is done in the allocation between Equity: Debt (80:20)
respectively.

Future Value of Equity instrument with 80% allocation.

Set= BGN , N = 10, I =11.75 , PMT = -60,000*80% , FV= Solve (930,010), P/y = 1 , C/y = 1

Future value of Debt instrument with 20% allocation.

BGN, N = 10, I =8.25, PMT = -60,000*20% , FV= Solve (190,429 ) , P/y = 1, C/y = 1

Combined future value of Equity and Debt (This is known as Portfolio):

Portfolio Value= Rs. 930,010 + Rs.190,429 = Rs. 11,20,439

39) Happy Singh, current age 40, wants to accumulate Rs.50.00 Lakh by retirement age 55. After investing
Rs. 45,000 p.a for past 10 yrs of his working life @ 9 % compounded yearly on ordinary annuity basis.
Happy Singh now realize he can now earn 12 % pa on his investment and accordingly moves his previous
accumulated value to new investment rate and also increases his investment amount to Rs. 60,000 p.a on
ordinary annuity basis for the rest of the working life. Will he be able to accumulate the amount required?
What will his corpus be?
a) Yes, Rs.61,65, 359
b) Yes, Rs .64,56,141
c) Yes, Rs. 65,36,450
d) Yes, Rs. 59,78,960

Step 1: Finding out Future value of regular investment of past 10 years

Set= END , N = 10, I = 9 , PMT = -45000 , FV= Solve (683,682), P/y = 1 , C/y = 1

As per question language after completing 10 years of investment, portfolio amount of Rs. 683,682 will
now be rebalance or switched over to new investment rate of 12% along with increased regular
investment of Rs. 60,000 p.a for next 15 years to retirement.

Step 2: Finding out Future value of regular investment for next 15 years
Set= END, N = 15, I = 12, PV= -683,682 , PMT = -60,000 , FV= Solve (59,78,960), P/y = 1 , C/y = 1

42) A 28 year old starts to save for his retirement at 60. You advise him to take maximum
advantage of equity in initial stage. The strategy is to invest Rs. 5,000 per month in equity
scheme. After 5 years, start another monthly investment of Rs. 5,000 in a debt scheme while
continuing with equity scheme of Rs.5,000 per month till retirement age. At his age of 40, switch
50% of accumulated equity investments to debt scheme while increasing debt investment by Rs.
10,000 per month. What accumulated amount would he be havinh on his retirement age.
Assumption: Equity – 9.5%, and Debt – 7.5%
(Answer: Rs. 20,646,087)

Solution:

FV of regular investment till retirement age 60, as per given strategy

1. First 5 years from age 28 onwards: Only Equity Investment

BGN, N= 5*12, I=9.5, Pmt=-5000, FV= Solve (381,081.13), P/y=12, C/y =1

2. Next 7 year’s till age 40: Equity and Debt Investment

Equity Investment:
BGN, N= 7*12, I=9.5,Pv= -381,081.13 Pmt=-5000, FV= Solve (1,308,314.74), P/y=12, C/y =1

Debt Investment:
BGN, N= 7*12, I=7.5, Pmt=-5000, FV= Solve (548,421.77), P/y=12, C/y =1

3. Next 20 year’s till age 60: Equity and Debt Investment

Equity Investment:
BGN, N= 20*12, I=9.5,Pv= -1,308,314.74*50% Pmt=- 5000, FV= Solve (7,429,700.59), P/y=12, C/y =1

Debt Investment:
BGN, N= 20*12, I=7.5, Pv= - 548,421.77- (13,08,314.74*50%) Pmt=-15000, FV= Solve
(13,216,386.73), P/y=12, C/y =1

4. Final accumulation of corpus at age 60:

FV of Equity investment : Rs. 7,429,700.59

Add: FV of Debt investment : Rs. 13,216,386.73

Total : Rs. 20,646,087.32

Conversion- CNVR
43) What is the effective annual rate, if the stated nominal rate is 12% p.a. compounded monthly?
a) 12.53%
b) 12.30%
c) 12.68%
d) 12.49%

Ans: -
Properties of CNVR mode: -
● n = C/Y (here in ‘C/Y’ stands for no. of annual compoundings)
● I% = ROI p.a.
● EFF = Used for calculating the “Effective Interest Rate”
● APR = Used for calculating the “Annual Percentage Rate” (also called the Nominal or Stated
Interest Rate)

CNVR Mode
 ● n = 12 (compounded monthly)
● I% = 12
● EFF = Solve = 12.68250301%

44) If the effective rate of interest is 17.87, then on a debt that has quarterly payments & compounded
quarterly, what is the nominal annual interest rate?
a) 16.78%
b) 18.92%
c) 20.93%
d) 21.00%

Ans: -
CNVR Mode
● n = 4 (compounded quarterly)
● I% = 17.87
● APR = Solve = 16.78378293%

45) The fixed deposit scheme of a bank offers 10% p.a. interest for 3 year deposit. If the compounding is
done semi annually, then effective annual interest rate is: -
a) 10%
b) 10.25%
c) 10.38%
d) 10.50%

Ans: -
CNVR Mode
● n = 2 (compounded semi annually)
● I% = 10
● EFF = Solve = 10.25%

RRR
46) Suppose a household deposits Rs. 100 with a bank for 1 year at an interest rate of 10% p.a. & at the
same time the inflation rate in the economy is 5% p.a., then the real rate of return (or inflation adjusted
return) is: -
a) 5.75%
b) 5%
c) 4.76%
d) None of the above

Ans: -
Real Rate of Return = [ (1 + Nominal Interest Rate) / (1 + Inflation Rate) ] - 1 x 100
= [ (1 + 0.10) / (1 + 0.05) ] - 1 x 100
= [ (1.10 / 1.05) ] - 1 x 100
= 4.76%

47) The average inflation over the last three years is 8.5 % p.a. You invested Rs. 1 lakh in a security 3 years
ago which you have redeemed for Rs. 1.3 lakh. What real return have you obtained from investment?
a) 0.5898%
b) 0.8598%
c) 0.75%
d) 0.64%
 Solution:
Step 1 : Find Investment rate earned on given investment
Set = BGN, N= 3, I= Solve (9.14%) , PV= -100,000 FV= 130,000 P/Y=1, C/Y=1

Step 2 : Use Real Rate of Return Formulae= 0.5898%

Real Rate of Return = [ (1 + Nominal Interest Rate) / (1 + Inflation Rate) ] - 1 x 100
= [ (1 + 0.914) / (1 + 0.085) ] - 1 x 100
= [ (1..0914 / 1.085) ] - 1 x 100
=0.5898%

HPR
48) Calculate Total Return
Price at the beginning of the year = Rs. 60
Price at the end of the year = Rs. 69
Dividend received during the year = Rs. 2.40
a) 20%
b) 19%
c) 18.65%
d) None of the above

Ans: -

Total Return =
Cash flows received during the year + (End Price - Begin Price)
Begin Price
Total Return = 2.40 + (69 - 60) = 0.19 = 19%
60

NPV
49) Find Net Present Value for Mumbai and Vashi Project:

ProjectMumbai Project Vashi

InitialInvestment -11000 -11000
CashFlow1st year 4000 3000
2ndyear 5000 4000
3rdyear 4000 6000
I 6% 6%
NPV ? ?
a)582 and 428

b)428 and 582

c)582 and 380

d)600 and 428

 Solution: 582 and 428

50) John has estimate that the following will be his outgoing over the next few years:
End of : Year One: Rs.10000
Two:Rs.15000
Three: Rs.12000 Four: Rs.13500 Five: Rs.11000
If John wants to cater to these cash outflows,how much should he have today,assuming an annual rate of return
of 5%?
a) 50524
b) 52568
c) 53220
d) 54753

Solution: Find NPV of the following uneven cash flow

51) Ramesh will receive Rs. 25,000 & Rs. 15,000 at the end of 14 & 15 year respectively. If rate of return
is 6%. Compute the Present Value of the amount.
a) Rs. 17,316
b) Rs. 17,500
c) Rs. 18,200
d) Rs. 17,300

Properties of Cash Function:-

● Cash function is always in the “Begin Mode”
● Cash function can be used only when the payments / receipts are in the yearly fashion (i.e. this
function cannot be used when the payments / receipts are in any other mode other than yearly
mode)
● Cash function denotes “Net Cash flow”, all receipts are in the positive mode while payments are
in the negative mode.
● Since the payments / receipts are in the yearly fashion, the compounding is also done on “annual”
basis only.

Cash Function
● i% = 6
● D. Editor x =

Year Cash Flow (X) Year Cash Flow (X)

1 0 9 0

2 0 10 0

3 0 11 0

4 0 12 0

5 0 13 0

6 0 14 0
 7 0 15 25,000

8 0 16 15,000

● NPV = Solve = 17,316

Method # 2: - CMPD Mode

Present Value of Rs. 25,000 Present Value of Rs. 15,000 Total Present Value

Set = End Set = End Total PV

n = 14 x 1 = 14 (i.e. n x P/Y) n = 15 x 1 = 15 (i.e. n x P/Y) = 11,057 + 6,259
I% = 6 I% = 6 = 17,316
PV = ? (11,057) PV = ? (6,259)
PMT = 0 PMT = - 7,064
FV = 25,000 FV = 15,000
P/Y = 1 P/Y = 1
C/Y = 1 C/Y = 1

52) Raghavan will receive an annuity of Rs. 50,000 payable once every two years. The payments will
stretch out over 10 years. The first payment will be received at the end of two years. If the annual interest
rate is 8%, what is the Present Value of annuity?
a) Rs. 2,65,426
b) Rs. 1,61,300
c) Rs. 2,71,456
d) Data is insufficient to calculate the answer.

Ans: -
Cash Function
● i% = 8

● D. Editor x =

Year Cash Flow (X)

1 0

2 0

3 50,000

4 0

5 50,000

6 0

7 50,000

8 0

9 50,000
 10 0

11 50,000

● NPV = Solve = Rs. 1,61,300.0336

53) An income stream provides Rs.2,000 for the first 3years and Rs.3,000 for the next 3 years.If interest rate is
14% per annum,how much money should be taken in lieu of the above payments or compute the present value of the
income stream?
a) 4643
b) 6964
c) 4701
d) 10652

Solution: Step1,
Present value of income stream for 1st 3years:
Pmt =2000, n= 3, i =14, PV=?= -5293 (1)
Step 2,
Present value of income stream for the next 3 years:
Pmt = 3000, n =3, i=14, PV=?= -7939
Step3,
FV = 6964.89, n=3, i=14, PV=?

IRR
54) Find the Internal Rate of Return for Mumbai and Vashi Project:

Cash Flow Project Mumbai Project Vashi

Initial Investment -11000 -11000
1st year 4000 3000
2nd year 5000 4000
3rd year 4000 6000
a) 8.83% and 7.86%
b) 7.86% and 8.83%
c) 8.83% and 5.23%
d) 8.01% and 7.86%

Ans: -
For Mumbai
Cash Function
● i% = 0
● D. Editor x =

Year Cash Flow (X)

1 -11,000

2 4,000
 3 5,000

4 4,000

● IRR = Solve = 8.83

For Vashi

Cash Function
● i% = 0
● D. Editor x =
Year Cash Flow (X)

1 -11,000

2 3,000

3 4,000

4 6,000

● IRR = Solve = 7.86

55) An annuity product is designed in such a way that it gives first cash flow at 6% of the corpus at the end
of first year and thereafter every year in the form of growingAnnuity at the rate of 5%. If the cash flows
are guaranteed for 15 years, what rate of return is obtained on the corpus invested?

Sr.No Cash Flow Inputs Remarks

1 -100.000 Assuming Rs.100 invested
today.
First cash inflow 100*6%,
2 6.000 willcome at the end of 1st year
and there after end of each year
3 6.300 6*1.05, Annuity increasing by
5% p.a
4 6.615 6.30*1.05
5 6.946 6.946*1.05
6 7.293 6.946*1.05
7 7.658 7.293*1.05
8 8.041 7.658*1.05
9 8.443 8.041*1.05
10 8.865 8.443*1.05
11 9.308 8.865*1.05
12 9.773 9.308*1.05
13 10.262 9.773*1.05
14 10.775 10.262*1.05
15 11.314 10.775*1.05
16 11.880 11.314*1.05
Solve : IRR 3.039%
 Additional sums-Advance
a) Mr. took a personal loan of Rs 2lakh at 14.5%pa interest, tenure 2yrs on the credit card. The card
company has also charged possessing fees of 1.5% on the loan amt. the interest is charged on monthly
reducing bal. what is the effective interest paid?

a) 16.04%pa
b) 17.28% pa
c) 13.79% pa
d) 15.25% pa

Loan amount 200000

Rate 14.50%
Term in years 2
Processing fee 1.50%
Processing fee Charged
3000 2,00,000 * 1.5%
upfront
Effective loan amount 197000 2,00,000 - 3,000
EMI $9,649.89 Set=begin,n=2*12,i=14.5,PMT? , PV = 200000,p/y=12,c/y=12
Rate 1.34% Set=begin, N = 2*12,i=?, PV = 197000, pmt = - 9649.89,p/y=12,c/y=12
Annual Rate 16.04% Answer * 12
Annual Effective Rate 17.28% Find EFF, N = 12, Rate = 16.04%

b)sMr. A has a gross annual salary of Rs. 10 lakh of which he saves 25% including mandatory savings and
voluntary systematic investments. Another 35% goes towards servicing of housing and car loans and
taxes. His Financial Planner advises him to accumulate 8 months’ household expenses in liquid funds. He
changes job and expects an immediate rise of 30% in his gross income. The incremental effect in his
mandatory savings and taxes would respectively be 1.5% and 3% of his revised gross income. You
estimate that other heads would not change materially except his household expenses which would rise
by 8% due to child education. How many months will it take to accumulate liquid reserves?
 13 months
 14 months
 15 months
 16 months
Gross present salary 1,000,00 Rs. p.a.
0
EMI and Taxes 350,000 Rs. p.a. 1000000*35%
Statutory and long 250,000 Rs. p.a. 1000000*25%
term investments
Household expenses 400,000 Rs. p.a. 1000000-350000-
250000
Increased Gross Salary 1,300,000
Revised Household 432,000 400000*(1+8%)
expenses
Revised out go towards 389,000 350000+1300000*3%
EMI and Taxes
Statutory and long 269,500 250000+1300000*1.5%
term investments
Amount available for 209,500 1300000-432000-389000-269500
investments in liquid
fund
Required liquid fund 288,000 432000*8/12
reserve
Time required for 1.3747 years 288000/209500
building required
reserve
Months required 16.50 months 1.3747*12