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TIME VALUE OF MONEY

Problems for exercise


Future Value: 1. What would you end up with if you left Tk. 1000 in the account for 5 years at 8% interest rate? Ans: 1469.33 . You get Tk 50 000 fro! your uncle. You would like to deposit this !oney in "haka #ank. $t present %ank offers 8% interest for ti!e deposit. &ow !uch shall it grow after 10 years? &ow !uch it will %e if co!pounded. i' (e!iannually ii' )uarterly iii' *onthly Ans: i) 107946.24 ii) 110401.98 iii) 110982.01 !. Your father recei+e Tk , 00 000 fro! selling a property. -ow he would like to "eposit the !oney in a fi.ed deposit account. /f the interest rate for such deposit is 10% then how !uch he will get after 5 years. &ow !uch after 10 years if interest is co!pounded se!iannually? Ans: 528,702.50, 962.140.64 Prese"t Value: 1. $ssu!e that you need Tk 0000 after 0 years. Your %ank co!pounds interest at an eight percent annual rate. &ow !uch you need to deposit now to ha+e a %alance of Tk 0000. Ans: 1714.68 . Your 1ather co!!itted you to present a co!puter after 5 years. Then the ti!e the co!puter will cost Tk. 25 000. /f %ank interest rate is 10% then how !uch !oney your father need to deposit now for fulfilling his co!!it!ent? Ans: 25,534.20 !. You ha+e a !achine in your %usiness. The e.pected life of this !achine is 8 years. $fter that it should %e replaced %y another one. To replace it you will need appro.i!ately Tk 30000. &ow !uch should %e deposited now to accu!ulate the re4uired funds if %ank interest rate is 10% per annu! co!pounded !onthly. Ans: 459.10 A""uit# FUTU$E %alue of a" a""uit# &Or'i"ar#(: 1. You want to go a%road for higher study. 1or this you are depositing Tk 10000 at the end of each year. /f the interest rate is 5% then how !uch you will get after 8 years. Ans: 132341.68 . *r. 6 interested to deposit Tk 500 at the end of each !onth in a "7( account in *ercantile #ank. The interest rate for "7( of the %ank is 8%. /f he deposited for , years then how !uch he will recei+e after that period. Ans:20,267.78 Future %alue of a" a""uit# &)ue(: 1. 8ah!an a student of (ta!ford 9ni+ersity would like to %uy a !otor%ike. 1or fulfilling his drea! he deposits 2000 at the %eginning of each year out of his daily recei+e fro! his parents. /f the interest rate is 10% then how !uch will it %e after 10 years. . /f so!eone !ake a deposit of Tk :000 at the %eginning of each year at the interest rate of 5%. $fter 5 years what will %e the accu!ulated a!ount he will recei+e. Ans: 39,140

Prese"t %alue of a" a""uit# &Or'i"ar#(: 1. 1ro! an insurance co!pany you would like to recei+e Tk 5000 at the end of each year for 2 years. &ow !uch !oney you ha+e to deposit now at 10% interest rate for recei+ing such a!ount? Ans: 15,186.75 . *r. &aki! retires fro! his ;o% and recei+es a lu!p su! a!ount fro! his e!ployer. &e wants to recei+e Tk. 100 000 at the end of each year for the ne.t 10 years. /f the interest rate is 5% then how !uch he has to deposit for recei+ing such series of cash inflows. Ans: 772173.4929 Prese"t %alue of a" a""uit# &)ue(: 1. What is the present +alue of Tk. 2000 recei+ing at the %eginning of each year for 3 years at a 10% interest rate? Ans: 21,421.04 . *r. #asher recei+es so!e !oney fro! his friend. &e co!!itted to repay the !oney at the %eginning of each year for 10 years %y Tk. :000. /f he !akes a pay!ent in this way total principle and interest will %e repaid. /f the interest rate is :% then how !uch !oney he takes fro! his friend. Ans: 46,810.15 $ <o!pany has decided to set up a sinking fund to replace an asset after 5 years. The +alue of the fund after 5 years !ust %e Tk. 1 00 000 and the fund is e.pected to earn interest at the rate of 3% per annu!. i( What !ust %e the annual pay!ent into the fund if the pay!ent !ake at the end of each year? A"s: **+., $fter 10 years your %usiness need Tk. 10 00 000. You !aintain a sinking fund and deposit so!e !oney at the %eginning of each year for 10 years. /f the interest rate is 5% then how !uch !ust the pay!ent %e to attain your re4uire!ents? Ans: 123304.56 *r. *annan %orrow Tk. 5 00 000 fro! a %ank for purchasing a shop. /f he pays annual e4ual install!ents for 10 years at 8% interest rate on outstanding %alance. Then what is the install!ent a!ount if he !ake install!ent at the end of each year? Ans: 68965.51 . Per/etuities: 1. /f you recei+e Tk. 500 for each year until you died = for e+er. /f the opportunity cost=discount rate is :% then what is the +alue of this perpetual a!ount? Ans:8333.33 . What is the +alue of a %ond paying 1000 per year for infinite ti!e and the interest rate is 3%. $ns>12085.31

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