1. If you deposit Rs.

800000 into an account earning 12% interest compounded quart

solution:
pv -800000
interest rate 12% 0.03
nper 5 20
fv $1,444,888.99
st compounded quarterly, how much would you have in 5 years
2. How much would you pay for an investment which will be worth Rs. 780,000 in thre

solution
fv 780000
interest rate 9%
nper 3
pv ($602,303.11)
th Rs. 780,000 in three years? Assume interest is 9%.
3. You have Rs.1000,000 to invest at 8% interest. If you wish to withdraw equal annu

solution
pv -1000000
interest rate 8%
nper 7

pmt $192,072.40
o withdraw equal annual payments for 7 years, how much could you withdraw each year and l
draw each year and leave Rs.0 in the investment account?
4. If your company borrows Rs. 1300,000 at 7% interest and agrees to repay the loan

solution
pv -1300000
interest rate 7% 0.035
nper 10 20
pmt $91,469.40
grees to repay the loan in 10 equal semiannual payments to include principal plus interest, how
pal plus interest, how much would those payments be?
5. You deposit Rs.17,000 each year for 10 years at 7%. Then you earn 9% after that.
solution
A) pmt -17000
rate 7%
nper 10
fv $234,879.62

B) rate 9%
pv ($234,879.62)
nper 5
fv $361,391.40
arn 9% after that. If you leave the money invested for another 5 years how much will you have
w much will you have in the 15th year?
6. If you deposit Rs. 90000 in a bank account and then keep on depositing Rs. 14000
solution
pv -90000
pmt -14000
nper 12
rate 8%

fv $492,315.08
ositing Rs. 14000 each year for the next 12 years, what will be the ending value of these inve
g value of these investments if the interest rate is 8%.
7. Arshad Mali has Rs. 42,180.53 in a brokerage account, and he plans to contribute
solution
pv -42180.53
pmt -5000
fv 250000
rate 12%

nper 11
e plans to contribute an additional Rs. 5,000 to the account at the end of every year. The broke
every year. The brokerage account has an expected annual return of 12 percent. If Arshad’s g
ercent. If Arshad’s goal is to accumulate Rs. 250,000 in the account, how many years will it ta
many years will it take for Arshad to reach his goal?
8. If you put Rs. 5000 in the stock market, how many years would it take you to triple
solution
pv -5000
rate 12%
fv 15000

nper 9.694035
d it take you to triple your money if the market is making 12% a year?
9. If you put Rs. 10 away at the end of each month for the next 40 years at a 12% sim
solution
pmt -10
nper 40
rate 12%
fv $7,670.91

fv $8,591.42
years at a 12% simple annual interest rate, how much money would you end up with? What i
end up with? What if you started at the beginning of each month?
10. If you borrow Rs. 150,000 for a house at 8% simple annual interest rate for 15 yea
solution
pv -150000
rate 8%
nper 15

monthly
pmt $17,524.43 $1,460.37
est rate for 15 years, what is your monthly payment?
11. How long would it take to accumulate Rs. 50,000 if you started putting Rs. 5 in the

solution
fv 50000
rate 7.30%
pmt -5
nper 92.59434

nper 93.59292 at the begnning of the period

putting Rs. 5 in the bank every month starting now at a simple annual interest rate of 7.3%?
erest rate of 7.3%? What if you started at the end of each month?
12. Your parents are planning to retire in 18 years. They currently have Rs. 250,000,
solution
nper 18
pv -250000
fv 1000000
rate 8%
y have Rs. 250,000, and they would like to have Rs. 1,000,000 when they retire. What annual
retire. What annual rate of interest would they have to earn on their Rs. 250,000 in order to re
250,000 in order to reach their goal, assuming they save no more money?
13. An investment pays you Rs. 100 at the end of each of the next 3 years. The inves
solution
years cashflows
1 100
2 100
3 100
4 200
5 300
6 500

nper 6
rate 8%
pv $923.98

fv $1,466.23
3 years. The investment will then pay you Rs. 200 at the end of Year 4, Rs. 300 at the end of
Rs. 300 at the end of Year 5, and Rs. 500 at the end of Year 6. If the interest rate earned on th
est rate earned on the investment is 8 percent, what is its present value? What is its future va
What is its future value?
14. Washington-Atlantic invests Rs. 4 million to clear a tract of land and to set out som

solution
pv -4000000
fv 8000000
nper 10
rate 7%
nd and to set out some young pine trees. The trees will mature in 10 years, at which time Was
s, at which time Washington-Atlantic plans to sell the forest at an expected price of Rs. 8 millio
d price of Rs. 8 million. What is Washington-Atlantic’s expected rate of return?
15. Assume that you inherited some money. A friend of yours is working as an unpaid

solution

years cash flows

1 50
2 50
3 50
4 1050

cost 900
rate 32%

pv $434.17

npv ($465.83)
orking as an unpaid intern at a local brokerage firm, and her boss is selling some securities th
g some securities that call for 4 payments, Rs. 50 at the end of each of the next 3 years, plus
he next 3 years, plus a payment of Rs. 1,050 at the end of Year 4. Your friend says she can ge
end says she can get you some of these securities at a cost of Rs. 900 each. Your money is
ach. Your money is now invested in a bank that pays an 8 percent nominal (quoted) interest r
al (quoted) interest rate, but with quarterly compounding. You regard the securities as being ju
securities as being just as safe, and as liquid, as your bank deposit, so your required effective
our required effective annual rate of return on the securities is the same as that on your bank d
s that on your bank deposit. You must calculate the value of the securities to decide whether t
s to decide whether they are a good investment. What is their present value to you?
ue to you?
16. Assume that your father is now 50 years old, that he plans to retire in 10 years, an
solution
A) for the same purchasing power

pv -40000
rate 5%
nper 10
fv $65,155.79

B) pv of the same purchasing power of the money he will receive.

rate 8%
nper 25
pmt ($65,155.79)
pv $751,165.30

C) earnings on savings
savings 100000
rate 8%
nper 10
fv $215,892.50

funds req $535,272.80

savings required annualy $36,949.61

ire in 10 years, and that he expects to live for 25 years after he retires, that is, until he is 85. H
at is, until he is 85. He wants a fixed retirement income that has the same purchasing power a
e purchasing power at the time he retires as Rs. 40,000 has today (he realizes that the real va
lizes that the real value of his retirement income will decline year by year after he retires). His
after he retires). His retirement income will begin the day he retires, 10 years from today, and
ears from today, and he will then get 24 additional annual payments. Inflation is expected to b
tion is expected to be 5 percent per year from today forward; he currently has Rs. 100,000 sa
has Rs. 100,000 saved up; and he expects to earn a return on his savings of 8 percent per ye
gs of 8 percent per year, annual compounding. To the nearest dollar, how much must he save
much must he save during each of the next 10 years (with deposits being made at the end of
g made at the end of each year) to meet his retirement goal?
17. What is the future value of a 5-year ordinary annuity that promises to pay you Rs.
solution
pmt -300
nper 5
rate 7%

fv $1,725.22
ises to pay you Rs. 300 each year? The rate of interest is 7 percent.
18. Find the amount to which Rs. 500 will grow under each of the following conditions
solution
pv -500
rate 12%
nper 5

A) compunded annually b) compounded semi annually

rate 12% rate 6%
nper 5 nper 10
fv $881.17 fv $895.42

C) compunded quarterly D) compunded monthly

rate 0.03 rate 0.01
nper 20 nper 60
fv $903.06 fv $908.35
ollowing conditions: a. 12 percent compounded annually for 5 years. b. 12 percent compounde
percent compounded semiannually for 5 years. c. 12 percent compounded quarterly for 5 ye
ed quarterly for 5 years. d. 12 percent compounded monthly for 5 years.
19. Find the present value of Rs. 500 due in the future under each of the following con
solution
fv 500
rate 12%
nper 5

A) semi annual compunding

rate 0.06
nper 10
pv ($279.20)

B) compunded quarterly
rate 0.03
nper 20
pv ($276.84)

c) compunded monthly
rate 0.01
nper 60
pv ($275.22)
ach of the following conditions: a. 12 percent nominal rate, semiannual compounding, discoun
mpounding, discounted back 5 years. b. 12 percent nominal rate, quarterly compounding, dis
ly compounding, discounted back 5 years. c. 12 percent nominal rate, monthly compounding,
onthly compounding, discounted back 1 year.
A company’s 2005 sales were $100 million. If sales grow at 8% per year, how large
will they be 10 years later, in 2015, in millions?
solution
nper 10
pv -100
rate 8%
fv $215.89 millions
Suppose a U.S. government bond will pay $1,000 three years from now. If the going
interest rate on 3‐year government bonds is 4%, how much is the bond worth today?

solution
nper 3
rate 4%
fv -1000
pv $2,775.09
$1,000. What interest rate would you earn if you bought this bond at the offer
price?
solution
nper 10
pv -613.81
fv 1000
rate 5%
5 years was 11.0% per year. If that growth rate were maintained, how long would it
take for Addico’s EPS to double?

solution

rate 11%
pv -2
fv 4
nper 6.641885
years. You could earn 6% on your money in other investments with equal risk.
What is the most you should pay for the annuity?
solution
nper 5
rate 6%
pmt -1000

pv $4,212.36