TIME VALUE OF MONEY

Confidential
Q.
1.Kalyani invests Rs. 20000 every year for 20
years. The rate of return is 8% p.a. The
investments value at the end of the said
period will amount to_____________ if the
said investment is done at the end of year.
Also find the fund value if the investments are
done at the beginning of the year ?


Answers
(915239 ,988458)

Confidential
Q
Harsh wants to accumulate Rs.1,50,000 in
three years time for his foreign trip. Assuming
he can get an 8% annual return on his
investments, compounded quarterly, how
much must he invest today in order to achieve
his goal ?

A.115258 B.116489 C.117452 D.118274

Q
3.Pravin invests Rs. 2000 every month in a SIP
for 10 years. He can earn a rate of return
8%p.a compounded monthly. The
investments value at the end of the said
period will amount to_____________


Answer
(368331 assuming investments is at the
beginning of the period)


Confidential
Q
Sagar makes a bank deposit. The deposit of Rs.
250000 will earn an interest of Rs._____ at the
end of one year, if it earns 10% p.a. compounded
every month.

A.25990
B.26178
C.27450
D.27990

Confidential
Q
Dayanand has Rs.25,00000 now in his account. If
he is withdrawing Rs.250000 from this account at
the end of each year, for how many years can this
account last assuming an annual interest rate of
5% ?

A.13.51
B.13.76
C.14.06
D.14.21

Confidential

Q

Amol along with his wife intends to take a trip twelve
years from now , which will cost Rs. 10,00,000 each .
Assuming his total savings and investments is worth
Rs.200,000 now and they can earn an annual interest
of 12%, how much he needs to save at the beginning of
each year to achieve this goal?

A.44166
B.44661
C.45166
D.45661
Confidential
Q
Shree Prasad purchased a house for Rs.25 crores
for which he takes a loan of Rs. 20 crores to be
repaid in 15 years at 8.25% on reducing monthly
basis. First installment paid after one month.How
much is his approximate EMI ?

A.19,27,032
B.19,25,000
C.19,40,280
D.19,55,130
Q.
The bank is charging Anjali 1419 per month as
EMI for her pleasure scooter loan of 42000 for
3 years and deducted one EMI in advance.
What is the per annum interest rate bank is
charging Anjali ?
Confidential
Q
Simran made an initial investment of Rs.20,000 in a
Mutual Fund. If she subsequently invested Rs.14,000 at
the end of each month into the same fund for the next
2 years, what is the value at the end of 5 years (grows
for 3 years), of her investment assuming an annual
return of 10% compounded monthly?

A.501580
B.528180
C.532080
D.536780

Confidential



Q

Find the present value of perpetual annuity of
Rs.2,20,000 at the end of every year Vivek
wants to receive , at 5.5% p.a?
Answer : 4000000
This is called perpetual annuity
This is a capital retention method : only
interest is paid as annuity & capital is intact
Other is capital liquidation : annuity is mix of
both interest and capital.

Confidential



Q
A Samsung Mobile set worth Rs.17800 is purchased by
Madhusudan by paying Rs.2800 down and the balance
in monthly installments for 2 years.
Find the monthly installment if the dealer charges 15%
compounded monthly, and the first installment is due
after one month
(727)
5. A has 10000 in his account and further
invests 5000 every year for 10 years initially
and then invests 10000 every year for 5 years
and 15000 for the next 5 years. The rate of
return after 5 years increases from 5 % to 10
% and 12 % for the last five years .find the
retirement fund value at the end of 20 years ?
Answer
Type o Type 1
40390.97 41,771
95575.56 100852.88
214976.4 229580.67
474154.5 511327
Q.
Stock of Richie rich is trading at a price of 100
goes for 1:2 bonus and then for 5:1 split. what
price should it trade ex bonus ex split ?
You want to sell a building at 10 lakhs 7 years
from now. The expected rent from the
property is 60000 p.a. You want a return of 13
% from the investment , at what price should
you buy ?
(690417)
Q
Q
Amar wants to purchase a car 5 years from now. His
investments are currently worth Rs.50,000/- and he intends to
contribute Rs.30,000/- at the beginning of every six months
period to fund his purchase. Assuming that the annual
investment rate of return is 8% compounded semi annually,
will Amar be able to purchase the car in five years time in case
the cost of the car at that time isRs.5,00,000? What will be the
value of his investment at the end of 5 years ?
(448602.76)

Q
Devdut has made semi annual deposits of
Rs.50000 for 5 years in to a saving fund which
pays 6.25 % p.a compounded HY. What further
Semi annual deposits for next two years would
make the fund value of 10 lakhs ? Use type 1
(75792.71)
Q
A is willing to buy single premium plan @ 80000 and then receive
annuity for 5 years from 3 insurers available to him. Which
plan should he choose ?




A B C
22000 22000 23000
21000 23000 20000
23000 25000 23000
27000 23000 25000
24000 24000 24000
Q.
Ajitab B needs to make a single investment with following
series of payments to be received at the end of year
(expected return 7 % pa)
120000
130000
140000
150000
160000
What price should he pay for it ? What if the cash flows are
at the beginning ?
(568490 end )( 608284.7 Beginning)

Great Indian Laughter Show
Raju Shrivastav started an investment plan by
paying 50000 every year (beginning) for 20
year. If on maturity he is guaranteed to
receive 10 lakhs what is the return on his
investment ?

Confidential
Q
Rani mukherjee changes her job at age 46. She is
given Rs.85000 as her vested benefit in the
companys pension plan. She invests this money
in a registered retirement savings plan paying 8%
p.a and leaves it there until her ultimate
retirement at age 60. She plans on 25 annual
withdrawals from this fund, the first on her 61
st

birthday find how much can she withdraw ?
(23388)
Q
Saif Ali Khan has the option of receiving following payments at
the end of each year for a movie
1)5 lakhs at end of 1 st year and 2 lakhs for next 3 years

2) Nil in 1 st year and 4 lakhs for next 3 years

3) 5 , 3 , 2 and 1 lakh in four years

4) 0 , 0 , 6 & 5 lakhs in four years
Given the rate of return is 9 % which option should he choose ?
If the producer had to make these payments which option he
would choose ?
Q
Sonu Nigam is to receive the payments from a Music company at
the end of each year as

120000
150000
180000
210000
240000

He wants to revise the terms and get payments which would have a
present value 50000 more than the existing and would like to
receive in 5 equal installments. Given the rate is 9 % what is the
new installment ?
(187700)
Q
Shahrukh khan is willing to invest upfront 50 lakhs and
then receive cash flows for 5 years in three IPL teams
available to him. Work out the best possible post tax
returns he would get if his tax bracket is 30 % ?

1200000 1100000 1100000
1500000 1700000 1600000
1800000 1700000 2600000
2100000 2500000 1800000
2400000 2000000 2200000

Q
Akhshay Khanna needs 10 lakh every
year(@the beginning) for 10 years in his
retirement . His retirement is 20 years from
hence. He can save some amount at the end
of every year for the 1 st 10 years only. What
amount he needs to save if the rate of return
is 7 % ?(276508)
Q.
Purohit has just bought a house for Rs.8,00,000.
He wants to sell it in 20 years time for Rs.
20,00,000. His friend who is a real estate agent
estimates that the house will appreciate in value
by 6% for the first 8 years, 5% for the next 8 years
and 4.50% for the last four years. What will be
the value of the house after 20 years and will
Purohit be able to realize his desired value?


Answer
Step 1 :Rs. 12,75,078.46
Step 2 :Rs. 18,83,871.61
Step 3 : Rs. 22,46,551.94
Q
A needs 1 lakhs for his retirement every year
for 10 years. If he can earn a return of 9 % and
falls under 18 % tax bracket , what fund value
he needs for retirement ?
(741120.68)
Q
An insurance Agent is giving Ajit a plan where
he needs to invest Rs. 50000 p.a for 5 years.
After a waiting for a period of 5 years he will
receive Rs. 100000 p.a. for 15 years. What is
the rate of return that he will get from this
plan?
(13.69%)

Q
How much would you have to deposit today to
have Rs.10,000 in five years if you can get 6%
p.a interest compounded semiannually for
first 2 years and 8 % p.a. compounded
quarterly after that?
(7005.66)

Q
If you borrow Rs.150,000 for a house at 8%
interest rate for 15 years, what is your EMI(
payment at the end of period)? how much
interest did you pay over the 15 years?
(1433.47 and 108026)

Q.A bond with 10 % coupon paying interest on
annual basis, is trading at 890 with maturity
after 5 years . What is it s YTM ?


Q. A bond of FV of 1000 and coupon of 7.5%
paying semi annually , is to mature after 17.5
years.If the yields in the bond market rise to 8
% at what price would trade ?
(953)
Q
You need a return of 12 %.A 1000 rupee bond
is trading at 925 and 3 years maturity pays a
coupon of 7%.Will you buy it ? At what price
should you buy ?
(880)
Q
Nana Patekar wants to withdraw 10,000 every
month ( begining) .If he s got a pension plan
with accumulated fund of 5 lakhs and annual
rate of return is 12 % p.a , for how many
months can he withdraw the amount ?
Q
1 Ahmeds current annual expenditure is Rs.
100000/-. He is 30 years old and expects to
retire at age 55. His annual expenses are
estimated to rise by 6% p.a. and his life
expectancy is 75 years. His post retirement
annual expenses are estimated to be 80% of
his pre-retirement expenses. What will be his
expenses upon retirement?
(343349.65 )
4.A is getting a salary of 500000 per annum.
He invests 20 % of the salary every year for his
retirement for 10 years. His salary is expected
to increase by 7 % every year and his expected
return is 12 %.what is the fund value he will
have at the end of 10 years ? Assume money
saved at the end of year.
Growing annuity
FV = A * ( (1+r)
N
- (1+g)
N
)
( (1+r) - (1+g))

r = rate of return
g = rate of growth of annuity
N = number of years
A = First year annuity.
What if it is invested in the beginning of the year ?

Q
Jay is considering the following investment projects:
Cash Flows (Rs)
Projects C1 C2 C3 C4
1 -10,000/- +10,000/- NIL NIL
2 -10,000/- +7,500/- +7,500/- NIL
3 -10,000/- +2,000/- +4,000/- +12,000/-
4 -10,000/- +10,000/- +3,000/- +3,000/-
Assuming the projects are independent and mutually
exclusive advise Jay which project he should opt for on
the basis of IRR and NPV respectively at 10% rate of
discount.

Solution (NPV preferred)
Q
Prashant Jain invested in HDFC Top 200 fund 3
lakhs in Aug 2004 @ NAV of 12.58. He received
dividend @ 12 % each in
Aug 2005
Aug 2006
Aug 2007
Aug 2008
The NAV of the fund on redemption ( Aug 2009)
is 16.68.Find the rate of return Jain got from his
investment ?

13.09
Q
Prashant Jain invested in HDFC Top 200 fund 3
lakhs on 2 nd may 2004 @ NAV of 12.58 he
received dividend 12 % each on
18 Aug 2004
20 Nov 2005
15 April 2007
16 June 2008
The NAV of the fund on redemption ( 2 nd April
2010) is 16.68.Find the rate of return Jain got
from his investment ?

Solution (XIRR)
Loan amortization
Bajaj has taken a home loan for 11 lakhs at
8.75% for 10 years. First installment at the end
of one month.For taxation purpose he wants
to know how much deduction of interest he
would get in the first year ?
Loan Amortization
Loan EMI
A takes a loan of 15 lakhs for 15 years at the
rate of 11 % on 31 March 2009. The first
installment due after 1 month. Calculate the
EMI ? ( Answer : 17049)
Loan amortization
A takes a loan of 15 lakhs for 15 years at the
rate of 11 % on 31 March 2009. The first
installment due after 1 month. Calculate the
interest and capital repaid for the August (5
th month) ?
Use IPMT & PPMT
Interest paid for 5 the month = 13627
Principal re paid for 5 th month = 3422

Loan amortization
A takes a loan of 15 lakhs for 15 years at the
rate of 11 % on 31 March 2009. The first
installment due after 1 month. Calculate the
total interest and capital repaid after 12
months(till march 2010) ?
Use CUMIPMT & CUMPRINC
Interest paid = 162942
Principal re paid = 41645

Q
Ranbir has taken a home loan of 17 lakhs for
15 years at 7.5 % fixed rate. He has paid 77
installments. First installment at the end of
one month. He wants to know how much he
needs to pay if he wants to pre pay the loan
with a penal charge of 2% ?
Solution
Q
Balvinder placed Rs. 10000 with a mutual
fund which charged him a load of 2.25%.
Management and other fees charged is 1.10%.
Ignoring other costs over 5 years, what annual
returns would the fund have to produce to
equal the value that the investment would
have earned in 8% fixed deposit?
Solution : Goal seek