Q1) Case Interest Rate® NO.

of Period Present Value Future Value

A 12% 2 1 1.254
B 6% 3 1 1.191
C 9% 2 1 1.188
D 3% 4 1 1.126

Q2)
A PV $ (1,500)
Interest 7%
Periods
3 $1,837.56
6 $2,251.10
9 $2,757.69

B Interest Earned
3yrs $337.56
6yrs $413.53
9yrs $506.59

C The total interest for the first 3 years is $337.56; for the next 3 years (from year 3 to 6) the additional
interest earned is $413.54. For the again next 3-year period, the incremental interest is $506.59.

Q3)
A N= 5
I= 2% 4%
PV= $ 14,000

FV= $15,457.13 $17,033.14

B The car will cost $1,576.01 more with a 4% inflation rate.

C Future value at end of first 2 yrs At the end of 5 yrs

N= 2 3
I= 2% 4%
PV= $ 14,000 $ 14,565.60
FV2= $14,565.60 FV5= $16,384.32

Q4) A B C
N= 5 5 5
PV= $ (10,200) $ (8,150) $ (7,150)
FV= $ 15,000 $ 15,000 $ 15,000
I= 8.02% 12.98% 15.97%

Q5) A B C
 N= 1 4 8
I= 14% 14% 14%
PV= $ 200 $ 200 $ 200
FV= 228 337.792 570.517284413

Q6) A B C
N= 6 6 6
I= 12% 12% 12%
FV= $ 6,000 $ 6,000 $ 6,000
PV= $3,039.79 $3,039.79 $3,039.79
D Answers are same ,questions are asked in different way

Q7) 1 2 3
A N= 10 10 10
I= 6% 9% 12%
FV= $ 1,000,000 $ 1,000,000 $ 1,000,000
PV= $558,394.78 $422,410.81 $321,973.24

B 1 2 3
N= 15 15 15
I= 6% 9% 12%
FV= $ 1,000,000 $ 1,000,000 $ 1,000,000
PV= $417,265.06 $274,538.04 $182,696.26

C The larger the discount rate and time ,the smaller will be present valve

Q8)
A B C D
N= 5 20 10 40
I= 10% 10% 10% 10%
FV= $ 30,000 $ 3,000 $ 10,000 $ 15,000
PV= $18,627.64 $445.93 $3,855.43 $331.42

Tom should purchase A and C , as it has lesser duration(Sooner is better).

Q9) FV of initial Investment

N= 7
I= 5%
PV= $ 10,000
FV= $14,071

FV of Second Investment
$20000-$14071 $5,929
 Initial Investment
N= 4
I= 5%
FV= $5,929
PV= $4,877.80

Q10)
A Ordinary Annuity [C]
1 2
N= 10 10
I= 10% 20%
PMT= $2,500 $2,500
FV= $39,843.56 $64,896.71

Due Annuity [D]

1 2
N= 10 10
I= 10% 20%
PMT= $2,200 $2,200
FV= $38,568.57 $68,530.92

B
At the end of 10 yrs ,for 10% rate, Annuity C has greater value. $39,843.56 > $38,568.57
At the end of 10 yrs ,for 20% rate, Annuity D has greater value. $64,896.71 < $68,530.92

C
Ordinay Annuity [C]
1 2
N= 10 10
I= 10% 20%
PMT= $2,500 $2,500
PV= $15,361.42 $10,481.18

Due Annuity [D]

1 2
N= 10 10
I= 10% 20%
PMT= $2,200 $2,200
PV= $14,869.85 $11,068.13

D At the beginning of 10 yrs, for 10% rate, Annuity C has greater value $15,361.42 > $14869.85
At the beginning of 10 yrs, for 20% rate, Annuity D has greater value $10,481.18 < $11,068.13

E At the end of 10 yrs Annuity C has higher PV with annual payment of $2500 at 10% than
Annuity D with annual payment at the beginning of year.
Q11)
A B
N= 40 30
I= 10% 10%
PMT= $2,000 $2,000
FV= $885,185.11 $328,988.05

C By Delaying the deposits by 10 yrs the Total opportunity cost is $556,197.06

D
N= 40 30
I= 10% 10%
PMT= $2,000 $2,000
FV= $973,703.62 $361,886.85

Due to Annuity Due 1yr has been added so the FV has been Increased

Q12) Perpetuity Annual Amt. Discount Rate PV

A $20,000 8% $250,000
B $100,000 10% $1,000,000
C $3,000 6% $50,000
D $60,000 5% $1,200,000

Q13)
Annual Payment $600
Students $3
Total Payment 1800

I= 6% 9%
FV= $ 30,000 $ 20,000

Q14)
Stream A Stream B I
CF1 $50,000 $10,000 15%
CF2 $40,000 $20,000
CF3 $30,000 $30,000
CF4 $20,000 $40,000
CF5 $10,000 $50,000

PV= $109,856.33 $91,272.98

PV of Stream A is higher than that of Stream B

Q15) A
 Case Amt
A $2,500
B $50,000
C $1,000
D $20,000
r m deposit period FV
6% 2 5 $3,359.79
12% 6 3 $71,412.31
5% 1 10 $1,628.89
16% 4 6 $51,266.08

C The Effective Interest Rate increases with increase in compounding Frequency

Q16)
A N= 25 B N= 25
I= 5% I= 9%
PV= $200,000 FV= $677,270.99
FV= $677,270.99 PMT= $7,996.03

C As John will have extra 1 yr

N= 1 N= 25
I= 9% I= 9%
FV= $677,270.99 FV= $621,349.53
PV= $621,349.53 PMT= $7,335.81

He should Invest $7335.81

Q17)
A N= 3
I= 14%
PV= $15,000
PMT= $6,460.97

Beginning
Year end
B End of year Total To Interest To Principal Principal
1 $6,460.97 2100 $ 4,360.97 $10,639.03 $15,000
2 $6,460.97 1489.46 $ 4,971.51 $5,667.52 $10,639.03
3 $6,460.97 793.45 $ 5,667.52 $0.00 $5,667.52

Q18)
A Annuity A B C D
N= 20 10 15 12
PV= $30,000 $25,000 $40,000 $35,000
PMT= $3,100 $3,900 $4,200 $4,000
I= 8.19% 9.03% 6.30% 5.23%

B Raina should select Annuity B as it gives highest rate of return.

Q19) A B C D E
 I= 11% 15% 10% 9% 6%
PV= $1,000 $150,000 $80,000 $600 $17,000
PMT= $250 $30,000 $10,000 $275 $3,500
N= 5.56 9.92 16.89 2.54 5.91
B
Eff. Int. rate
6.1%
12.6%
5.0%
17.0%