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2. Your grandfather is 75 years old. He has total savings of Rs.80,000. He expects that
he live for another 10 years and will like to spend his savings by then. He places his
savings into a bank account earning 10 per cent annually. He will draw equal amount
each year- the first withdrawal occurring one year from now in such a way that his
account balance becomes zero at the end of 10 years. How much will be his annual
withdrawal?
4. Suppose you buy a one-year government bond that has a maturity value of Rs.1000.
The market interest rate is 8 per cent. (a) How much will you pay for the bond? (b) If you
purchase the bond for Rs.904.98, what interest rate will you earn from this investment?
a. The company can borrow funds from a nationalized bank at the interest rate of 14
percent for 10 years. It will be required to pay equal annual installment of interest and
repayment of principal.
b. A financial institution has offered to lend money to DHPL at 13.5 per annum but it
needs to pay equated quarterly installment of interest and repayment of principal.
Questions:
1. Should the company expand its capacity? Show the computation of NPV
4. Should the company borrow from the bank or from the financial institution?