Chapter 2: Time Value of Money

Problems
1. Mr. A gives a loan of Rs. 10,000 to Mr. B for the period of one year. Assume simple rate of
interest is 10% per annum. Find out the total amount that Mr. A gets at the end of the year.

2. Mr. X gives a loan of Rs. 10,000 to Mr. Y for a period of 3 years. Assume simple interest of
10% per annum, find out total amount Mr. X gets at the end of 3rd year.

3. Mr. A gives a loan of Rs. 15,000 to Mr. B at a compounding interest of 10% per annum. Find
out the total sum of money, which Mr. A should receive at the end of 3 years.

4. Rs. 25,000 is given as loan to Mr. X at a compounded interest of 15% per annum. Find out
the total amount of money at the end of 5th year.

5. Calculate the compounded value when Rs. 1,000 invested for 3 years and interest on it is
compounded at 10% per annum semiannually.
6. m Xd p g R 2,000 2 ’ m d p m k,
which yields 6% interest per annum. Calculate the compound value if the interest is
compounded a. semiannually, b. quarterly

7. Mr. Raj invests Rs. 30,000 at 12% interest in a syndicate bank for 5 years. What amount does
he receive at the end of 5 years, if compounded annually and quarterly?

8. Suppose Mr. X deposits each year Rs. 500, Rs. 1,000, Rs. 1,500 Rs. 2,000 and Rs. 2,500 in his
savings account for 5 years. If the interest rate is 8%, he wishes to find out the future value
of his deposits at the end of 5 years. Assuming that the compounding time period is one year
and payment is made at the end of each year.

9. Suppose Mr. Yashwanth deposits each year Rs. 2,000, Rs. 3,000 Rs. 4,000, Rs. 5,000 and Rs.
6,000 in his savings account for 5 years. If the interest rate is 5%, he wishes to find out the
future value of his deposits at the end of 5 years. Assuming that the compounding time
period is one year and payment is made at the beginning of each year.

10. Mr. X deposits Rs. 3,000 at the end of the year for five years in his savings bank account
paying 5% interest compounded annually. He wants to determine; how much sum of money
he will have at the end of 5th year.
11. A four-installment annuity of Rs. 5,000 is deposited into an account, which pays 9% interest
compounded yearly. The annuity payment begins in the 6th year. What is the compounded
amount of annuity?

12. Mr. X wishes to know the sum of money he will have in his savings account, which pays 5%
interest (compounded annually) at the end of 12 years. If he deposits Rs. 1,000 at the end of
each year for the next 12 years.

13. If you deposit Rs. 5,000 today at 6% rate of interest, in how many years will this amount
double? Work out this problem by using the rule 72 and rule of 69.

14. From the following cases, calculate the sum of annuity generated by the deposit given the
specified rate and number of years:

Case Amount Deposited Annual Interest Rate No. of years

A 2,000 10% 5
B 10,000 12% 10
C 5,000 8% 4
D 6,000 14% 12

15. If Mr. X, a depositor expects to get Rs.100 after 1 year at the rate of 10%, what is the
amount he will have to forego at present?

16. If Mr. Z, the depositor expects to get Rs.1,000 after 1 year at the rate of 6%, what is the
amount he will have to forego at present?
17. Given the time value of money at 10% (discounting rate), you are required to find out
the present value of cash inflows that will be received over next four years.

Year Cash flows (Rs)

1 1,000
2 2,000
3 3,000
4 4,000

18. Given the Discount rate as 15%, find the present value of cash inflows that will be
received over next five years.

Year Cash flows (Rs)

1 1,500
2 3,000
3 4,500
4 6,000
5 7,000