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BUS249 Mathematic of Finance

Assignment #2

Activity on Time Value of Money

CRN – #91657

Section – SD2

Name Email Phone Numbers

Ajay Gupta Ajay.gupta@student.ufv.ca +91 7686000035
Vansh Gautam Vansh.gautam@student.ufv.ca +91 8264613992
Shray Bhalla Shray.bhalla@student.ufv.ca +91 9115482218
Vaibhav Sawansukha Vaibhav.Sawansukha@student.ufv.ca +91 9876167692

Submitted to – Prof. Meenakshi Malhotra

Submitted on – October 30th, 2022

Due Date – October 30th, 2022

BUS120 GROUP#4 Assignment #3 2

Question 1

Understanding our Credit Card Bills

 Collect your own or any sample credit card statement for two consecutive months. Pick up a
statement in which payment is made after the due date and interest have been charged in the
statement of the following month.
 Make a short write-up (250 words) on the terms and conditions applicable to the usage of a credit
card. These are stated on the bill itself.
 Then, study the statement in which interest is charged and show how interest on overdue
payments and other charges are calculated. For example, if the late payment penalty is Rs.1000,
you are required to work out this figure using the applicable interest rate and the number of days
for which it has been charged. You may take help by calling the call center of the concerned card-
issuing bank.
 Attach a copy of the statement with the assignment.

Answer. Terms & Condition for Credit Card

1) JOINING, ANNUAL & ADD-ON CARD FEE

Fees that the Cardmember must pay with their Credit Card - The fees may vary depending on the Cardmember
and the agreement. Cardholders are liable for any charges and fees that may be incurred periodically for
specific services.

2) Limit

The Bank shall decide the Cardmember's credit limit and cash withdrawal cap at its sole discretion. The same
cap applies to Add-on Cardmembers. These limits are made known when the card is sent to the cardholder and
in the monthly invoices.

3) Interest Charge details:

Interest will be charged;

 If the Payment Due Date passes without the Total Amount Due Being Paid
 If the minimum amount due is not paid by the payment due date, late payment fees and interest
will be assessed.
BUS120 GROUP#4 Assignment #3 3

Even if the card account is closed, the finance charges mentioned above will still be due until the
whole balance on the card has been paid.

4) Credit - Free Period

Based on the date of the purchase, the interest-free grace period could be anywhere between 20 and 50 days. If
there is still a balance from the previous month's bill, the interest-free credit term is suspended.

5) Billing and Statement

If there is a transaction or an outstanding balance of more than Rs. 100 on the Card Account, the Bank will
send a statement or e-statement to your mailing address or email address, as per the Bank's records, once per
month.

Credit Card Statement (Aug – Oct)

BUS120 GROUP#4 Assignment #3 4

The Payment Bounce Charges is calculated using the following method

Simple Interest = Principal x Rate x Time

Simple Interest = 9998 x 30% x 12 x 4.5/360
Simple Interest = 449.91 Rs

The below Information is asked from Axis Bank call centre Employee

If the payment is made on due date till 5 pm then there will be no late fee charges but if the payment is made
after 5 pm then the late fee charges will incurred for the remaining half day as well according to Axis Bank
term and condition. So the days are calculated according to that.
The amount is round of to the nearest value so the Payment Bounce Charges are 450 Rs.
BUS120 GROUP#4 Assignment #3 5

Question 2

Interest on Saving Account and Fixed Deposit and Recurring Deposits

 One page write-up (250 words) on the features of each of the deposit accounts i.e. Savings
Account, Fixed Deposit and Recurring Deposit.
 Collect information on the interest rates applicable on all three deposit schemes.
 Work out the interest calculations in each case. For a saving account, attach the account statement
and calculate the interest credited by the bank. Interest on savings account can be calculated to
match approximately with the actual interest. For Fixed Deposit, take an FD Receipt and calculate
the maturity amount. In addition, for Recurring Deposit (RD) attach a copy of the RD passbook
and show the calculation of interest credited on the maturity of RD.

Answer. A) Savings Account

Savings account is an interest-bearing deposit account service offered by various public and private

banks. Though they pay a marginal rate of interest on deposits, their safety and reliability make them

one of the best options to park money for the people.

Key Features of Savings Account –

 Money deposited by account holders is kept safe by the bank and can be withdrawn as per the
needs of the account holder.
 Account holders earn interests on the amount deposited by them into the savings account. The
rate of interest ranges from 2% to 7%.
 Account holders can deposit and withdraw money conveniently. Different banks have
different policies for withdrawals which are needed to be followed by the account holder.
 Banks offer debit cards at the time of opening an account which can be used to make
payments, online transactions, or withdraw cash from ATM.
 Account holders can make payments using UPI, NEFT, IMPS, or RTGS through services like
net banking, mobile banking, etc.
Fixed Deposit

A fixed deposit is an investment instrument offered by the banks to their customers to save money.

Customers invest some amount of money for a fixed period, against which they receive a

predetermined rate of interest. Different banks offer different rates of interests on Fixed Deposits.
BUS120 GROUP#4 Assignment #3 6

Key Features of Fixed Deposits –

 Returns on Fixed Deposits are assured with little to no risk.

 There is no actual limit to how much money can be deposited into the FD by the customer.
 Customers can get a loan against their Fixed Deposits worth up to 75% of the deposit amount.
 Tenure for a FD varies in different banks. It starts from 7 days and can go up to 10 years.
 Deposits can earn interest rates up to 7.75%.
Recurring Deposit

Recurring deposit is an investment tool offered by Indian Banks. Customers are made to deposit

money at regular predetermined intervals. These deposits earn interest on compounding basis.

Key Features of Recurring Deposits –

 Minimum amount for deposits to be eligible for RD varies in different banks.

 The tenure for RD varies from 6 months to 10 years.
 The rate of interest earned is same as FD and thus, gives higher returns than a Savings
Account.
 Recurring Deposits are very flexible. Customers can make premature withdrawal or cancel
their RD before maturity. The policies for the same vary from bank to bank.
B) Interest rates for different deposits

We have provided a list of interest rates provided under Savings Account, Fixed Deposit, and

Recurring Deposit by 5 famous banks in India.

Bank Name Interest Rates

HDFC Bank  Savings Account – 3% to 3.5%
 Fixed Deposit – 3.5% to 6.95%
 Recurring Deposit – 4.5% to 6.2%
(Senior citizens are offered an additional interest
of 0.50% on normal interest rates.)
Indian Bank  Savings Account – 2.75% to 2.9%
 Fixed Deposit – 2.8% to 6.3%
 Recurring deposit – 3.95% to 5.15%
(Senior citizens are not offered any additional
interest on normal interest rates.)
State Bank of India  Savings Account – 2.70% to 3%
 Fixed Deposit – 6.1%
 Recurring Deposits – 5.45% to 5.5%
(Senior citizens are offered an additional interest
of 0.50% on normal interest rates.)
BUS120 GROUP#4 Assignment #3 7

ICICI Bank  Savings Account – 3% to 3.5%

 Fixed Deposit – 3% to 6.25%
 Recurring Deposits – 4.25% to 6.10%
(Senior citizens are offered an additional interest
of 0.50% on normal interest rates.)

IDFC First Bank  Savings Account – 4% to 6.25%

 Fixed Deposit – 5.1% to 7.2%
 Recurring Deposits – 4.5% to 6.25%
(Senior citizens are offered an additional interest
of 0.50% on normal interest rates.)

C) How interest is calculated in a Savings Account

For this we have used a savings account statement as reference. The calculation for interest is shown

below. The statement has been attached on the next page.

Balance brought forward = Rs.41053

Amount credited to account on 04/01/21 = Rs.15000

Balance on 04/01/21 = Rs.56053

Interest earned = Principal x Rate x Time = 56053 x 0.0275 x 3/12 = Rs.386

Interest earned Rs.386 is approximately the same as the amount shown in the statement.
 BUS120 GROUP#4 Assignment #3 8

Figure 1Savings Account Statement

BUS120 GROUP#4 Assignment #3 9

How interest is calculated in a Fixed Deposit

Figure 2Fixed Deposit Receipt

From the above receipt, we get –

P= Rs.10000, i = 0.09/4 = 0.0225, n = 40

S = P(1 + i)^n = 10000(1 + 0.0225)^40 = 24351.88965 = 24352

The maturity amount, “s = 24352” matches the amount given in the fixed deposit receipt.

Interest earned = 24352 – 10000 = Rs.14352 Ans.

BUS120 GROUP#4 Assignment #3 10

How interest is calculated in a recurring deposit

Assumed value of deposits = Rs.2000, Tenure = 12 months, i = 0.0610/12 = 0.0051

Maturity value (S) = R ((1 + i)^n -1)/i = 2000((1 + 0.0051)^12 -1)/0.0051 = 24684.77680

Rs.24685 is approximately equal to Rs.24,804 which is given in the picture below.

Interest earned = 24685 – 24000 = Rs.685

Question 3:

Education Loan

You want to pursue bachelor’s degree from an international university and get your education financed. Visit
the website of any public or private sector bank. Collect information required for availing loan for the amount
you require. Give details about the loan size, tenure, eligibility, collateral, repayment, and other requirements
relevant for availing an education loan (500 words) Also, work out the EMIs for the repayment of the loan by
taking assumed figure for the loan principal and tenure. Match the calculated EMI with that calculated using
EMI calculator on bank’s website.
BUS120 GROUP#4 Assignment #3 11

Education Loans for Study Abroad

Although choosing to study abroad can change your life, it's not always an easy choice. There is now

the opportunity to arrange for funding your education through education loans for those who desire to

pursue higher education abroad. They also cover other costs like travel and equipment. Borrowers

have to bring in a margin of 5% to 15% for loans taken for foreign studies.

The sanctioning of an educational loan takes about fifteen days. Most of the time, banks pay the

organization directly or to you. Repayment generally starts six months after the course ends or as

soon as you get a job, whichever comes first.

Loan Size and Interest Rate

One of the biggest private banks providing loans for international education is HDFC Bank. The bank

only offers loans up to Rs 45 Lakhs* if you're seeking for an unsecured loan and with collateral

HDFC cover entire cost of education with no upper limit. For both domestic and international

courses, the interest rate for HDFC Education Loans can range from 9 to 14%. HDFC also imposes

non-refundable origination fees of 1.5 percent plus taxes on the sanction amount.

Tuition, exam fees, lab and library fees, caution deposit, travel, books and equipment, projects, and

study trips are all expenses covered by educational loans.

Tenure

The maximum loan payback period offered by HDFC, including the moratorium period, is 15 years.
BUS120 GROUP#4 Assignment #3 12

Eligibility

 Borrower must be an Indian citizen

 Co-applicants must be an Indian citizen
 Ability to offer collateral for certain cases
 Co-borrower(s) must have a bank account in any bank in India with cheque writing facilities
 Confirmed admission in the college before the disbursement
 Borrower and Co‐applicant(s) to meet HDFC Credila's credit and underwriting norms as
applicable from time to time

If collateral

 Property Title Deed

 7 / 12 extracts in case of land

 Registered Sale Agreement Along With Society Share Certificate

 Original Registration receipt for the above agreement

 Allotment Letter By Municipal Corporation / Authorized Govt. Authority Like MHADA, CIDCO,
etc.

 Previous Chain of Sale Deed establishing title

 Latest Maintenance bill along with Receipts issued by builder/ society,

 Latest Property tax bill along with receipts

 NOC for mortgage from society/builder

 Approved building plan

 Encumbrance certificates as on date etc

BUS120 GROUP#4 Assignment #3 13

EMI Calculation
BUS120 GROUP#4 Assignment #3 14

Question 4:

National Pension System (NPS)

National Pension System (NPS) is an investment cum pension scheme initiated by Government of India to
provide old age security and pension to all citizen of India. Briefly explain features of the scheme, eligibility
criteria, minimum contribution, procedure to subscribe, tenure and tax implications (500 words). You may
visit any bank’s website for this.
Calculate the monthly pension with assumed figures using the formulas and concept done in class. Match your
answer with the amount calculated with pension calculator on the relevant website. Paste a screenshot of the
output that you get with online calculator.

The National Pension System (NPS) is a government-sponsored investment-based pension programme

designed to offer pensions and old-age security to all Indian residents. The NPS system offers outstanding
choices for long-term savings, allowing a person to invest in this secure market-based plan and effectively plan
their future. Except for individuals who are employed by the armed forces, it is open to all personnel from the
public, private, and even unorganised sectors. The performance of these investments determines the returns in
the NPS programme, which invests subscriber contributions in market-linked assets including debt and
equities.
Ans.
Features:
 The National Pension Scheme offers substantially better returns than conventional tax-saving
investment vehicles like PPF.
 NPS provides yearly returns of 9% to 12%.
 If a person is unhappy with the performance of the fund, they can choose a different fund manager.
 Section 80C of the Income Tax Act permits NPS deductions up to a maximum of Rs. 1.5 lakh.
 After retirement, one is not permitted to withdraw the entire capital from the national pension system.
 The National Pension Scheme (NPS) only allows for the withdrawal of 60% of the account balance
during retirement, with the remaining 40% being invested in the annuity plan in order to receive a regular
pension.
 During the entire tenure, one may withdraw money up to three times every five years.

Eligibility Criteria:
BUS120 GROUP#4 Assignment #3 15

The NPS account can be opened by any Indian citizen. The NPS account opening age minimum is 18 years,
while the NPS account opening age maximum is 65 years. The applicant must not already have an NPS
account and must comply with KYC requirements.

Minimum Contribution:
The customers are needed to contribute Rs. 6000 annually and Rs. 500 once only to the tier-I account. The
subscribers must pay a yearly contribution of Rs. 2000 and a one-time contribution of Rs. 250 for the tier-II
account.

Procedure to Subscribe:
The National Pension Scheme's operations are governed by the Pension Fund Regulatory and Development
Authority of India. To open an NPS account, PFRDA offers both an online and an offline approach.

1. Online Process:
The steps to open the NPS account online are:
o Visit the enps.nsdl.com webpage.
o From the list of options, select either "business subscriber" or "individual subscriber."
o Select the proper residency status. "NRI" and "India Citizens" are also available options.
o Choose a Tier I account type, or both, since both are required for long-term savings.
o Enter your PAN information and pick an appropriate POP or bank.
o Select "register with Aadhaar" from the registration drop-down menu by clicking on it.
o Type in your Aadhaar number and select "Generate OTP (One Time Password)" from the menu.
o Using the registered mobile number, an OTP will be sent.
o Type in your name, contact information, banking information, and nomination information.
o The applicant will receive the Permanent Retirement Allotment Number (PRAN) after the
application has been filed successfully.
o An OTP will be provided to the registered mobile number after the person uploads their e-
signature and photo.
o To validate the signature and complete the payment, enter the OTP.
o After being directed to the payment gateway, follow the onscreen instructions to pay the
necessary fees using online banking.
o The permanent retirement account number will be generated once the payment has been
completed successfully.
BUS120 GROUP#4 Assignment #3 16

2. Offline Process:
The person must pick up the subscriber form from the closest PoP and submit it along with the
completed KYC papers in order to open an NPS account manually or offline. A Permanent Retirement
Account Number will be sent by the point of presence once the person makes the initial investment
(PRAN). The sealed welcome kit's PRAN number and password will make it easier for the user to
manage the account. The one-time registration cost of Rs. 125 is required while opening an NPS
account offline.

Tenure:
The National Pension Scheme, which is governed by PFRDA, matures at 60 years of age and has a maximum
extension of 70 years. After three years after account formation, the NPS permits subscribers to withdraw a
portion of their contributions, up to 25%, for purposes like as paying for a home, funding a child's education,
or treating serious illnesses.

Tax implications:
Under section 80C of the Income Tax Act, the National Pension System permits tax exemption on
contributions paid to the plan up to a maximum of Rs. 1.5 lakh. Additionally, both the company and employee
contributions made under the NPS programme are eligible for a tax break.
BUS120 GROUP#4 Assignment #3 17

Calculations:
Future Value of Due Annuity:
P * {(1 + r) ^n - 1) * (1 + r) / r}
1000 * {(1+0.005) ^ 480 – 1) * (1 + 0.005)/0.005}
1000 * (9.9574536) * (201) = Rs 2001449
Therefore, total corpus value is Rs 2001449
40% of 2001449 towards annuity: Rs 800580
Equating 800580 to r/I,
Therefore, the expected Monthly Pension will be Rs 4003.

References:
Pension Calculator | NPS Trust. (n.d.). Retrieved October 30, 2022, from
https://www.npstrust.org.in/content/pension-calculator

NPS Calculator - National Pension Scheme Calculator Online. (n.d.). Groww. Retrieved October 30, 2022,
from https://groww.in/calculators/nps-calculator