Financial Mathematics

Week 9-10
Dr. Albertus Bramantyo, ST, MT, PhD
albertus.bramantyo@lecturer.prasetiyamulya.ac.id

Take Attendance in LMS/Moodle (Choose “Present” not “Absent”) from 13.30 –

13.40.
If you can’t fill attendance, please give a screenshot of your problem that
includes the problem and time of the problem
Password for attendance : 04112020

1
Question 1
• A Bank with 10 % interest rate per annum (compounded semi
annually) is charged with 15 % tax for every compound cycles. If a
client stored a deposit of $ 2000 in the Bank, what is the total value of
the deposit after 10 years?
Question 1 (Answer)
i = 10 % * (1 – 15 %) = 0.085;
m = 2;
t = 10;
PV = 2000

𝑖 ×
𝐹𝑉 = 𝑃𝑉 × 1 +
𝑚
×
0.085
𝐹𝑉 = 2000 × 1 +
2
𝐹𝑉 = 4597.8126
Question 2
• Paul hoped to receive $ 5000 in the next 4 years after graduating from
college. He planned to make a deposit in a Bank with 8 % interest per
annum (compounded quarterly) with 10 % tax. How much is the
amount of initial deposit that Paul needed?
Question 2 (Answer)
FV = 5000
i = 8 % * (1 – 10 %) = 0.072;
m = 4;
t=4

𝐹𝑉
𝑃𝑉 = ×
𝑖
1+𝑚
5000
𝑃𝑉 =
0.072 ×
1+ 4
𝑃𝑉 = 3758.4221
Question 3
• A potential investor needed to invest $ 300000 with a discount rate of
10 % compounded annually. The projected net cash flow are $
130000, $ 140000, and $ 120000 respectively. Calculate the NPV (Net
Present Value) and decide whether the investor should invest in the
project or not.
Question 3 (Answer)
Cash Flow Present Value Calculation Present Value Result
Cash Flow Year 0 -300,000 -300,000 -300,000
Cash Flow Year 1 130,000 130000 118,181.8182
𝑃𝑉 =
1 + 10%

Cash Flow Year 2 140,000 140000 115,702.4793

𝑃𝑉 =
1 + 10%
Cash Flow Year 3 120,000 120000 90,157.7761
𝑃𝑉 =
1 + 10%
TOTAL 24042.0736

NPV = 24,042.0736; NPV > 0

The investor should invest in the project

Question 4
• A project demands $ 200000 initial investment with discount rate of
7.5 % per year. In the next 4 years after the initial investment, the
projected net cash flow are $ 70000, $ 65000, $ 50000, and $ 60000,
respectively. From this project, a minimum return of 10 % is required.
After calculating the IRR (Internal Rate of Return), is the project worth
investing or not? Hint : Use Office Excel to simplify IRR calculation
Question 4 (Answer)

Because IRR < required return (10 %), the project is NOT worth investing
Question 5
• Peter plans to make periodic deposit at every end of the year. The
Bank has an interest rate of 8 % per annum (compounded annually)
and charged a tax fee at 5 %. How much is the value of Peter’s
periodic deposit if he wants to receive $ 10000 after 10 years?
Question 5 (Answer)
i = 8 % * (1 – 5 %) = 0.076;
m = 1;
t = 10;
VANU = 10000

×
⁄
VANU = 𝐴 × ⁄

𝑖
𝑚
𝐴 =𝑉 × ×
1+𝑖 𝑚 −1
. ⁄
𝐴 = 10000 × . ⁄ ×

𝐴 = 703.5184
Question 6
• Brian became a client in a local Bank for the first time in 2010. His
initial deposit was $ 5000 and periodic payment $ 500 every end of
the compound period (starting from 2010 and compounded
quarterly). The Bank gives fixed interest rate at 8 % per annum
(compounded quarterly) and charged a tax fee at 10 %. After 10
years, what is the total value of Brian’s fund at the Bank?
Question 6 (Answer)
P0= 5000;
A0 = 500;
i = 8 % * (1 – 10 %) = 0.072;
m = 4;
t = 10
× ×
⁄
𝑉 =𝑃 +𝑉 =𝑃 × 1+ +𝐴 × ⁄
×
0.072
×
1 + 0.072 4 −1
𝑉 = 5000 × 1 + + 500 ×
4 0.072
4
𝑉 = 39132.1601
Question 7
• Maria takes a loan of $ 5000 with 10 % interest rate per annum
(compounded annually). She plans to make periodic payment semi-
annually and pays the initial loan including interest in the period of 5
years. How much is the value of Maria’s periodic payment?
L = 5000;
i = 10 % = 0.1;
m = 2;
t=5

× ×
⁄
𝑉 = −𝑃 + 𝑉 = −𝐿 × 1 + +𝐴 × ⁄

In order for the loan (plus interest) to be repaid, Vt must be 0

×
𝑖 ×
1+𝑖 𝑚 −1
0 = −𝐿 × 1 + +𝐴 ×
𝑚 𝑖
𝑚
×
𝑖 ×
1+𝑖 𝑚 −1
𝐿× 1+ =𝐴 ×
𝑚 𝑖
𝑚
𝐿×𝑖 𝑚 𝐿×𝑖 𝑚
𝐴 1 𝐴 = = ×
𝐿= × 1− 1
𝑖 × 1− 1− 1+𝑖 𝑚
𝑚 1+𝑖 𝑚 1+𝑖 𝑚
×

5000 × 0.1 2
𝐴 = × = 647.5229
1− 1+ 0.1
2