Assignment#1

Chapter no.2

Time Value of Money

Q#1

If Rs.10,000 is invested for 6 years at an annual simple interest rate of 16%.

a. How much interest will be earned?

Answer=9600
b. What is the amount of the investment at the end of the 6 years?
Answer= 19600

Q#2

What sum would borrow in Rs. 1250 as simple interest at 3% in 3 years?

Answer=13889

Q#3

At what rate of interest, would Rs.1800 amount to Rs. 2500 in 2 years?

Answer=19.44%

Q#4

How long will it take for Rs. 1000 to amount Rs. 1180 at 6% per annum simple interest.

Answer= 3year

Q#5

Compute the compound interest on Rs. 500 for 61/2 year at 2 ½ compounded semi-annually.

Answer=87.63

Q#6

Find compound interest due in case of Rs.1000 loaned for 5 years at 6% p.a.

Answer=338.23
Q#7

On a saving bank account Bank A pays 3% interest compounded annually, while Bank –B pays
6% interest compounded semi-annually on a deposit of Rs. 2000 ,how much more interest will
be earned in 3 years at Bank –B as compared to Bank-A.

Answer=202.65

Q#8

Suppose you were to receive $1000 at the end of10 years. If your opportunity rate of 10 percent,
what is the present value of this amount if interest is compounded

(a) Annually (b) Quarterly (c)semi-annually

PV=?

Q#9

In connection with the United States Bicentennial, the Treasury once contemplated offering a
savings bond for $1,000 that would be worth $1 million in 100 years. Approximately what
compound annual interest rate is implied by these terms?

FV=P (1+I) n

1000000=1000(1+i) 100

1000000/1000= (1+i) 100

(1000)1/2= (1+i) 100*1/2

31.62= (1+i) 50

31.62= (FVIFi, 50)

i=7%

Q#10

A man invest Rs. 300 at the end of each month in a fund which pays 4% compounded semi-
annually.how much does he have just after the tenth deposit.

Anwer=328.92

Q#11

Mr. Khalid wishes to save money to take a trip. if he deposit Rs. 150 at the end of each month for
24 months in an investment that pays 12% compounded monthly, how much will he have
deposit.
Answer= 4046.02

Q#12

A house is rented for Rs. 900 per month, with each month’s rent payable in advanced. if the
interest rate is 12% compounded monthly and the rent is deposited in an account, what is the
amount of rent for one year?

Answer= 11528.40

Q#13

Jeo Hernandez has inherited $25000 and wishes to purchase an annuity that will provide him
with a steady income over the next 12 years. He has heard that the local savings and loan
association is currently paying 6% percent compound interest on an annual basis. if he were to
deposit his funds, what year-end equal –dollar amount (to nearest dollar) would he be able to
withdraw annually such that he would have zero balance after his last withdrawal 12 years from
now?

PVAn = R(PVIFAi%,n)

R=?

$25,000 = R (PVIFA6%, 12) = R (8.384) R = $25,000/8.384 = $2,982

Q#14

You need to have $50000 at the end of 10 years. To accumulate this sum, you have decided to
save a certain amount at the end of each of the next 10 years and deposit it in the bank .the bank
pays 8% interest compounded annually for long-term deposits. How much will you have to save
each year to the nearest dollar?

FVAn = R(FVIFi,n)

R=?

$50,000 = R(FVIFA8%,10) = R(14.486) R = $50,000/14.486 = $3,452

Q#15

Sales of the P.J. cramer Company were $500000 this year, and they are expected to grow at a
compound rate of 20% for the next 6 years. What will be the sales figure at the end of each of the
next six years?

Q#16

Establish loan amortization schedules for the following loans to the nearest cent
a. A 36-month loan of $8,000 with equal installment payments at the end of each month. The
interest rate is 1 percent per month.
b. A 25-year mortgage loan of $184,000 at a 10 percent compound annual interest rate with equal
installment payments at the end of each year.

Q#17

Earl E. Bird has decided to start saving for his retirement. Beginning on his twenty-first birthday,
Earl plans to invest $2,000 each birthday into a savings investment earning a 7 percent
compound annual rate of interest. He will continue this savings program for a total of 10 years
and then stop making payments. But his savings will continue to compound at 7 percent for 35
more years, until Earl retires at age 65. Ivana Waite also plans to invest $2,000 a year, on each
birthday, at 7 percent, and will do so for a total of 35 years. However, she will not begin her
contributions until her thirty-first birthday. How much will Earl’s and Ivana’s savings programs
be worth at the retirement age of 65? Who is better off financially at retirement, and by how
much?

FV of Earl's plan = ($2,000) x (FVIFA7%, 10) x (FVIF7%, 35)

= ($2,000) x (13.816) x (10.677)

= $295,027

FV of Ivana's plan = ($2,000) x (FVIFA7%, 35)

= ($2,000) x (138.237)

= $276,474 Earl's investment program is worth ($295,027 - $276,474) = $18,553 more at

retirement than Ivana's program.