1

Equation Practice
a)
 1 
1 − (1 + i ) n 
PV A = A ×  
 i 
 
Present Value of Annuity/ Ordinary
 1 
Annuity 1 − i n×m 
 (1 + ) 
PV A = A ×  m 
 i 
 m 
 
 
 1 
1 − (1 + i ) n 
PV A = A ×   (1 + i )
 i 
 

Present Value of Annuity Due  1 

1 − i n×m 
 (1 + ) 
PV A = A ×  m  (1 + i )
 i  m
 m 
 
 

(b) Calculation of the NPV of project A

CF1 CF2 CF3 CF4
Net Present Value (NPV) = + + + − CF0
(1 + k ) 1
(1 + k ) 2
(1 + k ) 3
(1 + k )4

We know,
1,07,000 1,21, ,000 1,28,000 1,35,000 1,42,000
NPV = + + + + − 5,00,000
(1 + 0.1)1 (1 + 0.1)2 (1 + 0.1)3 (1 + 0.1)4 (1 + 0.1)5
= 97,273 + 1,00,000 + 96,168 + 92,207 + 88,171 − 2,00,000
= 4,73,819 − 5,00,000
= −26,181taka
NPV of the A project= -26,181 taka

CF1 CF2 CF3 CF4 CF5

Net Present Value (NPV) = + + + + − CF0
(1 + k )
1
(1 + k ) 2
(1 + k )
3
(1 + k ) 4
(1 + k )5
 2

15,000 22,000 10,000 3,000

= + + + − 50,000
(1 + 0.12) (1 + 0.12) (1 + 0.12) (1 + 0.12)4
1 2 3

= 13,393 + 17,538 + 7,118 + 1907 − 50,000

= 39,956 − 5,00,000
= −10,044taka

Net present value of N project

We know,
CF1 CF2 CF3 CF4 CF5
Net Present Value (NPV) = + + + + − CF0
(1 + k ) 1
(1 + k ) 2
(1 + k )
3
(1 + k ) 4
(1 + k )5
15,000 22,000 10,000 3,000
= + + + − 50,000
(1 + 0.12) (1 + 0.12) (1 + 0.12) (1 + 0.12)4
1 2 3

= 13,393 + 17,538 + 7,118 + 1907 − 50,000

= 39,956 − 5,00,000
= −10,044 taka

 1 
1 − (1 + K )n 
NPV = A ×   − CF0
 K 
 
 1 
1 − (1 + 0.10 )5 
= 18,000 ×   − 60,000
 0.10 
 
 1 
1 − (1.10 )5 
= 18,000 ×   − 60,000
 0.10 
 
1 − 0.620921
= 18,000 ×   − 60,000
 0.10 
= (18,000 × 3.79079) − 60,000
= 68,234.22 − 60,000
= 8,234.22 taka

NPVLR
Internal rate of return (IRR) =LR + × (HR − LR )
NPVLR − NPVHR
 3

× (0.16 − 0.10 )
8,234.22
= 0.10 +
8,234.22 − (− 1,062.71)
8.234.22
= 0.10 + × 0.06
9,296.93
= 0.10 + 0.0531
= 0.1531
= 15.31%
Therefore, internal rate of return (IRR) of project M is 15.31%.

Payback period, PBP = +

1,50,000 − 1,45,000
= 2+
50,000
5000
= 2+
50,000
= 2 + 0.1
= 2.1 years
Standard deviation, σ = ∑ − ×

= 0.15 − 0.158 × 0.20 + 0.14 − 0.158 × 0.40 + 0.18 − 0.158 × 0.40

= √0.0000128 + 0.0001296 + 0.0001936
= √0.000336
= 0.0183303
= 1.83%
!
Expected rate of return, R = " + # $ − "% × &
= 9% + 18% − 9% × 1.8
= 9% + 9% × 1.8
= 9% + 16.2%
= 25.20%

∑ ) * )* +
Standard deviation of security-A, σA = ( , -

./% -.01% + 2 /% -.01% + 2 -3% -.01% +

=( . -

04..5542 .1554266.6554
=(
 4

--0.0001
=(

= √58.3334
= 7.64%
We know, portfolio standard deviation,

89 = (:; × 8; + :< × 8< + 2 × :; × :< × 8; × 8< × => ;<

= 0.40 × 8 + 0.60 × 6 + 2 × 0.40 × 0.60 × 8 × 6 × 0.80

= √10.24 + 12.96 + 18.432
= √41.632
= 6.45%