Assignment on Time Value of Money

Q1. You are considering the purchase of a new car. You have negotiated with the
salesperson at the dealership and can purchase the vehicle for Rs 30,000. You have Rs
8000 that can be used as a down payment.

Before going to the dealer, you had made up your mind and set an absolute limit of Rs
375 as the monthly payment amount that you can make on the car. You are willing to
finance over five years but you cannot exceed the payment of Rs375 per month. The
dealer is offering to finance you at an annual rate of 6.5% for a 5 year loan or a 5.5%
financing on a 4 year loan.

1. Can you meet your payment restriction and finance the amount required for the
car.
2. What is the maximum amount that you can borrow, to meet your payment
restriction if the loan is to be paid off in 5 years?
3. Suppose, you are limited to paying Rs375 per month but you want to loan off in 4
years and not 5 years. What is the maximum amount that you can borrow?

Q2. Find the present value of the following cash flows using a discount rate of 10%

Year Cash Flow

1-3 1,000
4 2,000
5 3,000
6-14 1,000
15 4,000

Q3. For the following cases, calculate the amount at the end of the deposit period.

Case Initial amount Interest Rate No of years Compounding

period
1 4000 8 4 3
2 2000 10 5 6
3 1000 11 10 12

Q4. SS purchases a computer system for Rs 35,000, which is borrowed on a 15% interest,
The loan is to be repaid in 12 EMI, payable at he end of each month. Determine the laon
installment amount

Q5. A company purchases a FA for Rs 4, 00,000 by making a down payment of Rs

1, 00,000 and the remaining balance in equal installments of RS 1,00,000 for 4 years.
What is the rate of interest to the firm?
Q6. Mr. Sundaram is planning to retire this year. His company can pay him a lump sum
retirement payments of Rs 2, 00,000 or Rs 25,000 life time annuity which ever he
chooses. Mr. Sundaram is in good health and estimates to live for at least 20 more years.
If his interest rate is 12%, which alternative should he choose?

Q7. Assume that you have given a choice between incurring an immediate outlay of Rs
10,000 and having to pay Rs 2310 a year for 5 years (first payment due one year from
now) the discount rate is 11%. What would be your choice? Will your answer change if
Rs 2310 is paid in the beginning of each year for 5 years.

Q8. Exactly twenty years from now Mr. Ahemd will start receiving a pension of Rs
10,000 a year. The payment will continue for twenty years. How much is pension worth
now, assuming money is worth15% per year.