TIME VALUE OF MONEY

1. You have invested 100 times of the last 4 digits1 of your Regn No. in a Monthly
Income Scheme (MIS) which pays a annual rate of interest of 8.4% and the monthly
income so generated is invested in a Recurring Deposit (RD) account which pays an
annual rate of interest of 8.3% for a period of five years then, what is the total Amount
you will receive at the end of the period?
2. What is the value on December 31, 2008 of the following cash flows? (Use a 10%
discount/compounding rate).
Date Cash Received Amount
01/01/08 Last 4 digits of Reg No. X 1000
01/01/09 Last 4 digits of Reg No. X 1000
01/01/10 Last 4 digits of Reg No. X 1000
01/01/11 Last 4 digits of Reg No. X 1000
01/01/12 Last 4 digits of Reg No. X 1000
Value on December 31, 2008 is __________
Value on December 31, 2012 is __________
3. If your life insurance premium each year is equivalent to 10 times the last four digits
of your Regn No. from this year till you are 70 Years of age and if the insurance
provider agrees to provide you with a 2.5 Crore of life cover till you are 70 years of
age without any assured return, what is the future value of your premiums assuming
that you average annual interest rate is 9.25% when you are seventy?
Total Amount at the end of the period is Rs.________
In which year will the Future Value of your premiums will be equal to the
cover of Rs. 2.5 Crore? No. of Years is _____
4. You are planning to retire in 40 years. Currently, the typical house that you plan to
purchase costs 12,000,000, but you expect inflation to increase the price of the house
at a rate of 6 percent over the next 40 years. In order to buy the house upon
retirement, how much must you save each month in equal monthly beginning-ofmonth deposits if you can earn 10 percent annually?
5. Assume that you purchased a boat for 500 times the last five digits of your Regn.No
and pay 50,000 as down payment and agree to pay the rest over the next few years in
equal monthly payments that include principal payments plus 12 percent compound
interest on the unpaid balance. The payments are paid at the end of the each month.
What will be the amount of each payment? How many months will it take you to pay
the amount in full?
6. An investment carries a nominal interest rate of last two digits of your registration
number annually, but interest on the investment is actually compounded monthly.
What is the actual annual percentage yield on the investment?
7. Assume that you have just won a competition and have a choice between three alternative
prizes, or options. With option 1, you would receive 500,000 now. With option 2, you
would receive 45,000 per year in perpetuity with 5% growth for the first 15 years. With
Option 3, you would receive 200,000 now and 10% increase every year up to 10 years. If
the appropriate discount rate is 10%, The best option is ________

8. Y can borrow 110,000 today at 7.5% for thirty years to buy a home. If he waits another
six months, the bank will charge him 8.0% for the same loan. Payments are made on the
first of each month. How much interest will Y save over the life of the loan if takes the
loan today?
9. C would like to leave 50,000 to his son, R. However, C knows that R spends money as
fast as he gets it. C decides to buy a 50,000 ordinary annuity to provide an annual income
to R for the next 30 years. The first payment will be paid one year from now. The
insurance company will pay 4.5% interest on the annuity. How much will R receive
annually?
10. After retirement at age 60, you anticipate living 10 more years. At the beginning of each
of these years you want to withdraw $30,000 from your retirement account. Your account
balances will continue to earn 8 %. How much should you deposit annually in the
account?
11. A mutual fund has been advertising that, had you deposited 550 per month in an
investment scheme for the last 10 years, you would now have accumulated 85,000.
Assuming that these deposits were made at the beginning of each month for a period of
120 months, calculate the effective annual return of the investment.
12. You are planning to retire in 40 years. Currently, the typical house that you plan to
purchase costs 300,000, but you expect inflation to increase the price of the house at a
rate of 5 percent over the next 40 years. In order to buy the house upon retirement,
how much must you save each year in equal annual end-of-year deposits if you can
earn 10 percent annually?

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