Problems in Time value of money 1. Calculate the present value of Rs 1500 a. Received one year from now b.

Received at the end of five years c. Received at the end of fifteen years Assume interest rate is 10 percent 2. Assuming a 10 percent discount rate, compute the present value of Rs 1,100, Rs 900, Rs 1500 and Rs 700 received at the end of one through 4 years. 3. You have Rs 15,000 to invest today at 7 percent compounded annually a. How much would you have accumulated in the account at the end of 3 years, 6 years and 9 years? 4. You wish to accumulate Rs 10, 00,000 at the end of 7 years by making equal annual year end deposits over next 7 years. Assuming 10 percent rate of return, how much should you deposit at the end of each year to accumulate Rs 10, 00,000. 5. A loan of Rs 10, 00, 000 is to be repaid over 5 equal installments calculated on the basis of an annual rate of interest of 16 % per annum. Find equated annual installments and prepare loan amortization schedule. 6. Using the following information, determine the present value of the mixed stream of cash flows, assuming 10 percent discount rate. Year Cash flows a. 1. Rs 8,000 2. 10,000 3. 15,000 4. 20,000 7. Assuming two alternative options b. Rs 40,000 at the end of each year of the next 20 years c. Rs 4,00,000 paid immediately If you expect to earn 5 percent annually, which alternative would you choose? 8. To supplement your planned retirement after 30 years, you estimate that you need to accumulate Rs 22, 00,000 by the end of 30 years from today. You plan to make equal annual end of year deposits into an account paying 6 percent annual interest. d. What should be the annual deposit? e. If you can afford to deposit Rs 60,000 per year, how much will you accumulate at the end of 30 years?

9. At age 20, how much should one invest at the end of each year in order to have Rs 10 Lakh at age 50, assuming 10 percent annual growth rate? 10. You have an expected liability (cash outflow) of $500,000 in 10 years, and you use a discount rate of 10%. a. How much would you need right now as savings to cover the expected liability? b. How much would you need to set aside at the end of each year for the next 10 years to cover the expected liability? 11. You are trying to estimate the NPV of a 3-year project, where the discount rate is expected to change over time. Cash Flow to Discount Firm Rate 0 -$15,000 9.5% 1 $5,000 10.5% 2 $ 5,000 11.5% 3 $ 10,000 12.5% Estimate the NPV of this project. Would you take this project? Year 12. You have an expected liability (cash outflow) of $500,000 in 10

years, and you use a discount rate of 10%. a. How much would you need right now as savings to cover the expected liability? b. How much would you need to set aside at the end of each year for the next 10 years to cover the expected liability?
13. A company is planning to set aside money to repay $100 million

in bonds that will be coming due in 10 years. If the appropriate discount rate is 9%,

a. how much money would the company need to set aside at the end of each year for the next 10 years to be able to repay the bonds when they come due?
14. You have a relative who has accumulated savings of $ 250,000

over his working lifetime and now plans to retire. Assuming that he wishes to withdraw equal installments from these savings for the next 25 years of this life, how much will each installment amount to if he is earning 5% on his savings? 15. You are offered a special set of annuities by your insurance company, whereby you will receive $20,000 a year for the next 10 years and $30,000 a year for the following 10 years. How much would you be willing to pay for these annuities, if your discount rate is 9% and the annuities are paid at the end of each year?