Illustrations

1. If you invest Rs. 5,000 today at a compound interest of 9%, what will be its future value after 75
years?

2. If the interest rate is 12%, what are the doubling periods as per the rule of 72 and the rule of 69
respectively?

3.Fifteen annual payments of Rs. 5,000 are made into a deposit account that pays 14% interest per
year. What is the future value of this annuity at the end of 15 years?

4. A finance company advertises that it will pay a lumpsum of Rs. 44,650 at the end of five years to
investors who deposit annually Rs. 6,000 for 5 years. What is the interest rate implicit in this offer?

5. What is the present value of Rs. 1,000,000 receivable 60 years from now, if the discount rate is
10%?

6. A 12-payment annuity of Rs. 10,000 will begin 8 years hence. The first payment occurs at the end of
8 years. What is the present value of this annuity if the discount rate is 14%?

7. What is the present value of the following cash stream if the discount rate is 14%?

Year 0 1 2 3 4

Cash flow(Rs.) 5,000 6,000 8,000 9,000 8,000

8. Mahesh deposits Rs.200,000 in a bank account which pays 10% interest. How much can he
withdraw annually for a period of 15 years?

9. Shyam borrows Rs. 80,000 for a musical system at a monthly interest of 1.25%. The loan is to be
repaid in 12 equal monthly instalments, payable at the end of each month. Prepare the loan
amortization schedule.

10. Calculate the present value of an uneven cash flow using discount rate of 12%.

CASH FLOW
YEAR (Rs.)
1 1000
2 2000
3 2000
4 3000
5 3000
6 4000
7 4000
8 5000
11. A borrower offers 16% nominal rate of interest with quarterly compounding. What is the effective
rate of interest?

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