FINANCIAL MATHS II TUTORIALS

ANNUITIES

1. Calculate the future value of 10 constant annuities of 10,000fcfa, the first payable 3 years from now,
given that the interest rate is 12.75%.

2. A series of 10 annuities of 10,000fcfa each have a future value of 158,000fcfa. Calculate the compound
interest rate.

3. A series of n annuities of 25000fcfa each, compounded at an interest rate of 11% have a future value of
400,000fcfa. Calculate the number of annuities.

4. Calculate the future value of 44 quarterly payments of 10,000fcfa each, at an annual rate of 9.5%.

5. - Calculate the future values of 10 annuities of 50000 FRS each invested as follows: 9% from
the 1/1/2000 to 31/12/2003, 10% from the 1/1/2004 to 31/12/2009 at compound interest.
- Calculate the values of these constant annuities on 01/01/2001.

6. A person can settle his debt as follows:

➢ Either by paying 275,000 FRS immediately or
➢ By accepting 4 bills of 80,000 FRS each due every two years. Or
➢ By accepting 15 annual bills of 25,000 FRS each, the first due after a year.
Which is the best mode of settlement for the debtor at compound interest rate of 12% p.a?
7. A company acquired a goodwill worth 12,000,000 FRS and promised to settle in 8 equal
annuities with the first to be paid two years after signing the contract:
a. Calculate the amount of the annuity at a rate of 5% compounded annually.
b. After paying the third annuity, he decided to settle the balance in 6 annuities at a higher rate
of interest. Given that the annuity is 1,709,320 FRS, calculate the new rate of interest
compounded annually.
8. A person wants to buy an equipment worth 32 000 000 Frs. with the following conditions:
- 12 000 000 FRS down payment.
- The balance in 12 equal annuities at the end of each year at 6% p.a compound interest.
Calculate the annuities.
9. A businessman buys a goodwill at 500 000 FRS. He paid 100 000 FRS cash down and promised
to settle the balance by means of 12 constant annual bills. The first payable 2 years after
acquisition.
a) Calculate the amount of each of the 12 constant annual bills at a rate of 9.5% p.a.
b) After paying the fourth bill, he decided to settle the balance by 6 constant annuities, but
at a lower rate. Calculate the new rate knowing that the new constant annuity is
75,963.38 FRS.
10. Mr melengfeh is faced with three conditions of settling his debts
• By a cash payment of 82000fcfa
• By accepting 2 bills of 97500fcfa each due after 5 and 10 years respectively.
• By accepting 10 annual bills of 15000fcfa each, the first being due after a year.
Given the rate of 12%, which is the best mode to Mr. Melengfeh.

11. Mr. Melengfeh wished to build up a capital of 15,000,000fcfa in 10 annual deposits.

a) Calculate the value of the annual deposit at 5% p.a. compound interest
b) Determine the amount 6 months after the 8th deposit was made, given that in case Mr
melengfeh anticipates his withdrawals, the interest rate is cut down to 4%·
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12. A person deposits in a bank account every quarter, a constant sum of 1,000,000FCFA. The first
deposit took place on the 01/02/2002 and the last one on the 01/08/2004.
A constant amount of 1,200,000FCFA is withdrawn quarterly from the account. The first
withdrawal took place on the 01/11/2004 and the last one on the 01/02/2006. All the operations
are capitalized at the quarterly rate of 2.5%. calculate the balance of this account immediately
after the last withdrawal.
13. In a new house development plan at ABC municipality houses are selling at 25 000 000 Frs. and
requires a 10 000 000 Frs. down payment, the balance to be paid in 8 equal annuities payable at
the end of each year at 5% per annum. Calculate the annuity.
14. A person wants to buy a plot to build a house costing 5 000 000 fcfa. He decides to open a saving account
where he makes annual deposits of 886 982 fcfa each year. The first deposit being made a year after the
decision.
a) At what yearly rate will this account enable him to obtain an amount required at the end of 5 years?
(hint: use financial tables)
b) Because of some financial difficulties, instead of making 5 deposits, he made a total of 7 deposits.
Calculate the yearly deposit which will enable him obtain the same amount after 7 years. (hint: use
financial tables)
c) Calculate the equivalent semester rate and equivalent quarterly rate.

15. Mr. MELENGFE, on the 1/01/1989, in anticipation to buy a truck decided to be saving constantly in his
credit union account 2,000,000FCFA at the end of each year. He finally decided to effect 15 constant
payments, the 1st on 1/1/1990.
He however felt sick in the course of the payment and could only deposit 1,000,000FCFA between1993
and 1995. His health situation deteriorated from 1996 and he could only deposit 700,000FCFA until 1999.
He got well in 2000 and once more came back to the normal yearly deposits of 2,000,000FCFA
a) Determine the capital, he will obtain immediately after the last payment is made , rate 9%. (hint:
forecasted future value)
b) Determine the amount of capital which had been reduced in relation to the forecast.

16. A person wishes to invest his annual savings which amount to 200 000fcfa, every 31st December
in an account earning 5% compound interest for 20 years.
a. Calculate the future value of these savings on the last investment date.
b. In fact, as from the 11th saving, he struggled to increase the amount to 300 000fcfa. What
will be the acquired value on the last date?
c. What will be the growth in acquired value on this date?
The amount constituted by this person cannot permit him to acquire a house of his choice.
Nevertheless, he acquired the house and accepted to pay 5 ordinary annuities of 510 000fcfa
each at 6% per annum.
d. What amount did he lack at the purchase of this house?
e. If he decided to settle the balance in 10 annuities of 290 000fcfa, calculate the rate of
interest in this new system.

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INVESTMENT APPRAISAL
1. A business man wishes to buy a new oven for his bakery situated at cow street Bamenda. The cost of this
investment is 25 000 000frs and to be purchased at end of 2012. Its life span is 4 years and it is depreciated
linearly over 4 years. At the end of the life span, its residual value is 2 500 000 frs. The running cost is 5
000000 frs end of 2013, 6 000 000 frs end of 2014, 8 000 000 frs end of 2015 and 8 000 000 frs end of 2016.The
turnover generated by the outputs manufactured will be 14 000 000 frs each of the two first years and 15000
000 frs each of the two last years. This bakery is liable to the company tax at 38.5%. You are required to
calculate for each year.
a) The forecasted profit before tax
b) the company tax
c) the forecasted profit after tax
d) the net cash flow the net actualized cash flow given that the actualization rate is 4%
e) Calculate the profitability rate of the investment.
f) What is the payback with actualization
2. Which project will be selected under NPV and IRR? Cost of capital is 10%.
A B

Cash outflow 2,00,000 3,00,000

Cash inflows at the
end of 1 Year 60,000 40,000
2 Year 50,000 50,000
3 Year 50,000 60,000
4 Year 40,000 90,000
5 Year 30,000 1,00,000

3. From the following information, calculate the pay-back periods for the 3 projects. Cost 200,000FCFA each
Suggest most profitable project.
Year Project I Project II Project
III
1 50,000 60,000 35,000
2 50,000 70,000 45,000
3 50,000 75,000 85,000
4 50,000 45,000 50,000
5 50,000 – 35,000
4. A company has to choose one of the following two actually exclusive machine. Both the machines have to be
depreciated. Calculate NPV.
Cash inflows
Year Machine X Machine
Y
0 (20,000) (20,000)
1 5,500 6,200
2 6,200 8,800
3 7,800 4,300
4 4,500 3,700
5 3,000 2,000

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5. A machine cost 125,000FCFA. The cost of capital is 15%. The net cash inflows are as under:
Year FCFA
1 25,000
2 35,000
3 50,000
4 40,000
5 25,000
Calculate internal rate of return and suggest whether the project should be accepted of cost.

6. A project has the following cash flow occurring at the end of each year
Years 0 1 2 3 4 5
Cash flow (million) (100) 50 40 80 60 40
Calculate the NPV assuming the cost of capital at 13.5% and determine if the investment is worth
undertaking or not
7. A business undertakes high risk investment and requires a minimum expected rate of return of 17%
p.a. on its investment. A proposed capital investment has the following expected cash flows
Year 0 1 2 3 4
Cash flow (50,000) 18,000 25,000 20,000 10,000
a. Calculate the NPV of the project if the cost of capital is 15% and 20%.
b. Use the NPV calculated and estimates the IRR of the project.
c. Recommend whether the project should be undertaking.

8. BAMBUIY Engineering Company is considering three mutually exclusive projects with the
following cash flows:
X Y Z
Year 0 (15000) (40000) (50000)
Year 1 5000 15000
Year 2 10000 15000
Year 3 5000 20000 15000
Year 4 30000 15000
Year 5 10000 15000
The company wishes to earn at least 15% 0n any project that it chooses; which project is the best?
9. THE WAY ENTERPRISE has the following cash flows occurring at the year end.
Year 0 1 2 3 4 5 6
Cash inflow 0 0 8,000 9,500 10,000 11,000 14,000
Cash out flow 21,000 6,000 0 0 0 2,000 3,000
a. Calculate the net present value assuming 15% and 17% p.a. Cost of capital. 10marks
b. Calculate the internal rate of return using your results in (a) above. 5 marks
c. The payback period 5marks

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10. A project has the following cash flows occurring at the end of each year
Year 0 1 2 3 4 5 6
Cash flow (000) (120) (30) 90 70 80 75 65
Calculate the following
a) The pay back period of this investment
b) The net present value assuming 15.5% and 18.5% per annum cost of capital
c) The internal rate of returns
d) Present the IRR graphically

11. A firm is considering two separate capital projects with cashflows as shown below
Years 0 1 2 3 4 5
Project (800) (180) 200 250 380 450
A
Project (1200) (300) 500 500 500 500
B
a) Using the NPV criterion, and a discount rate of 15%, advice on the project to choose
b) Find the NPV using a discount rate of 20%. Hence estimate the IRR for each project.

12. A trader is contemplating between two capital projects which have the following features

Element Project A Project B

Capital 5,000,000 8,000,000
Duration 3years 3 years
Cashflow 1,500,000 3,000,000
1
2 2,000,000 3,000,000
3 3,000,000 3,000,000
Residual value 700,000 1,000,000

Which project will you advise him to carry out at 8% interest rate
13. A five-year investment project is envisaged by TRADEX. The initial cost of investment is 1,700,000FCFA.
The net forecast revenues for the next five years are: - 100,000 FRS, 600,000 FCFA, 800,000FCFA,
1,200,000FCFA and 800,000FCFA respectively. The residual value for the last year is 100,000FCFA.
a) Determine the net actual value of this investment at the rate of 15%% and 25%
respectively.
b) Determine the internal rate of return of this investment.
c) Explain how the net present value criterion and the internal rate of return differ in their
use in appraising projects.
14. SEN PLC decides to equip it services with computers. Two projects are envisaged,
Project 1: purchase of a micro-computer with a monitor, printer, 2 drives and software. Acquisition price,
12,000,000 FRS payable by 5 constant payment of3,000,000 FRS each, the first been paid at
delivery. The estimated cash flow at the end of each year is 2, 300,000 FRS during six years which
the life spans of the asset.
Project 2: Purchase of a micro-computer with 3 terminals for a global amount of 30,000,000 FRS payable 20%
cash, the balance in 10 payments of3000000 FRS each, the first been paid after a year. The
estimated cash flow at the end of each year is 4, 000,000 FRS during 10 years. What is the most
profitable project at 12.5%?

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15. An investor is contemplating among three possible investments:

▪ INVESTMENT 1: cost, 28,840,000 FRS; yearly constant receipt for five years,8,000,000FCFA
▪ FRSINVESTMENT 2: cost, 30,000,000 FRS; yearly receipt in AP with common difference of
1000000 FRS, first year receipt 10,000,000 FRS and duration 5years
▪ INVESTMENT 3: Cost, 30,000,000 FRS; receipt in G.P with common ratio of 0.9; first receipt,
10,000,000 FRS and duration, 5 years
a) Compute the IRR of the investment.
b) Using the rate obtain above; compute the NPVs of both investment 2 and 3.
c) Choose the best among these investments using the method of the net present values computed in
question (b) above.

16. SOSUCAM is looking into the possibility of expanding its factory of iron rods. It has to make one of the two
choices:
▪ Purchase of a new machine costing 30,000,000 FRS paid in cash as at the beginning of the first year
and likely to fetch a supplementary annual income of 6,000,000 FRS estimated at the end of the year
for 10 years
▪ The expenditure on the second machine amounts to 15,000,000 FRS payable in cash as from the
beginning of the first year and likely to fetch a supplementary annual income of 5,000,000 FRS
estimated at year ending for 5 years. The discount rate is 8%.
Which of the investment is profitable?
17. A farm project has the following net cash flows occurring at the end of each year
Years 0 1 2 3 4 5 6
Cashflow (110) (25) 85 60 75 74 69
(000000)fcfa
Required:
a) Determine and interpret the payback period of the project.
b) Determine the net present value of the project given a discount rate of n16.5% p.a.
18. A firm is considering a project with following cashflows
year Cashflows FCFA
0 (5,000,000)
1 1,800,000
2 2,500,000
3 1,500,000
4 1,000,000

The estimated trade in value of the equipment is 200,000FCFA. Calculate

a) The net present value of the project at 16% and 20% cost of capital
b) The internal rate of returns

19. THE WAY ENTERPRISE has the following cash flows occurring at the year end.
Year 0 1 2 3 4
Cashflow (10000) 6500 3,000 (1,500) 4,000
a. Calculate the net present value assuming 15% and 17% p.a. Cost of capital.
b. Calculate the internal rate of return using your results in (a) above.
c. The payback period.

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20. A business undertakes high risk investment and requires a minimum expected rate of return of 17%
p.a. on its investment. A proposed capital investment has the following expected cash flows
Year 0 1 2 3 4
Cash flow (50,000) 18,000 25,000 20,000 10,000
Calculate the NPV of the project if the cost of capital is 15% and comment. 5mks

21. The estimated cashflow on two separate projects machine A and machine B are as follows
year Machine A Machine B
Cash in Cash out Cash in flow Cash out flow
flow flow
0 - 500,000 - 500,000
1 600,000 300,000 100,000 100,000
2 800,000 400,000 400,000 200,000
3 400,000 240,000 600,000 300,000
4 200,000 200,000 840,000 400,000
a) Using a discount rate of 8% p.a., calculate the net present value of the two projects.
b) Which of the projects should be selected?
c) Determine the payback period for both projects.

22. A loan of nominal value V0 is reimbursed in 6 constant annuities. The ratio of the 3rd (A3) amortization
and the 1st (A1) amortization is 1.092025. The difference between the 3rd and the 1st amortizations is
3690.66 FRS. Calculate:
a. The rate of the loan.
b. The first amortization.
c. The nominal value of the loan.
d. The amount of the annuity.
e. The last amortization.

23. You are given below the amortization table of a loan reimbursed by constant annuities:
Years Debt at Interest Amortization Annuities
start
1
2 441561.76 518916.51
3
4 605264.22
.
.
N
a. Reconstitute the first line of the amortization table.
b. Reconstitute the last line of the amortization table.
c. Determine the number of amortizations, n.
24. From the amortization table of a loan, we have the following information:
- Interest of the last year is 948.39 Frs.
- Amortization of the year before the last period is 22797.875 Frs.
- The interest of the first period is 8000 FRS. Knowing that the loan is reimbursed by
constant annuities, calculate
a. The borrowing rate.
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b. The last amortization.

c. The amount of the constant annuity.
d. The amount of the borrowing.
e. The duration of the borrowing.

25. On the 1st of January 1978, Mr. KUMSI borrowed a certain sum which is reimbursable by constant
annuities; the 1st annuity is payable on the 31st of December 1978. The following are extracted from
the amortization table of the loan:
- First amortization is 43735.2 Frs.
- Sixth amortization is 53210.56 Frs.
- Twelfth amortization is 67328.33 Frs.
a. Determine the rate.
b. Knowing that the constant annuity is 75735.20 FRS; calculate the amount of the
borrowing.
c. Calculate the number of the annuities.

26. An ordinary loan is payable back in 20 constant annuities at 10% compound interest. The last
amortization is greater than the first by 803 896.67 FRS.
a. Calculate the first amortization.
b. Determine the amount of the loan.

27. A loan is to be amortized in 10 constant annuities. Given that the 3rd amortization is 420, 740 FRS
and the sixth is 487, 060 Frs. Calculate:
a. The interest rate
b. The amount of the loan
c. The amount of the constant annuity.

28. A loan is redeemable in 6 constant annuities. The ratio of the 4th amortization to the 1st amortization
is 1.124864. The difference between the 3rd and the 1st amortization is 430573 FRS. Calculate:
a) The rate of the loan
b) The 1st amortization.

29. A capital, K, is to be paid by 12 constant payments. You are given

- 𝐴1 + 𝐴2 = 13515.22
- 𝐴2 + 𝐴3 = 14528.86. Calculate A1, A12, the interest rate, the constant payment and the
initial capital.

30. A joint borrowing is payable by constant payment. You are giving the following information:
- 1st amortization 6548.80 FCFA
- 6th amortization 10309.38 FCFA
- 12th amortization 17771.21 FCFA. Calculate
a. The interest without using the financial table.
b. The initial amount of the loan with constant payment being 25548.80 FCFA.
c. The number of installment.

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31. AZUR PLC gives you the data concerning a loan contracted in February N from a credit
establishment. The loan form below contains the relevant information
Amount: 8000000 Frs. Interest rate: 10% p.a
Period: 10 years yearly payment
Date: 01/02/N
1st Installment: 01/02/N+1 REDEMPTION: CONSTANT PAYMENT
Period Date of Due at Interest Amortization Annuity
payment start
1
2
a. Compute the constant payment.
b. Compute line 1 and line 2 of the redemption table.
c. Calculate the amount of the last amortization.

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ORDINAY LOAN

1.A loan of nominal value V0 is reimbursed in 6 constant annuities. The ratio of the 3rd (A3) amortization
and the 1st (A1) amortization is 1.092025. The difference between the 3rd and the 1st amortizations is
3690.66 FRS. Calculate:
a. The rate of the loan.
b. The first amortization.
c. The nominal value of the loan.
d. The amount of the annuity.
e. The last amortization.
2.You are given below the amortization table of a loan reimbursed by constant annuities:
Years Debt at start Interest Amortization Annuities
1
2 441561.76 518916.51
3
4 605264.22
.
.
n
a. Reconstitute the first line of the amortization table.
b. Determine the number of amortizations, n.
c. Reconstitute the last line of the amortization table.
3.From the amortization table of a loan, we have the following information:
- Interest of the last year is 948.39 Frs.
- Amortization of the year before the last period is 22797.875 Frs.
- The interest of the first period is 8000 FRS. Knowing that the loan is reimbursed by constant
annuities, calculate
a. The borrowing rate.
b. The last amortization.
c. The amount of the constant annuity.
d. The amount of the borrowing.
e. The duration of the borrowing.
4.On the 1st of January 1978, Mr. KUMSI borrowed a certain sum which is reimbursable by constant
annuities; the 1st annuity is payable on the 31st of December 1978. The following are extracted from
the amortization table of the loan:
- First amortization is 43735.2 Frs.
- Sixth amortization is 53210.56 Frs.
- Twelfth amortization is 67328.33 Frs.
a. Determine the rate of interest
b. Knowing that the constant annuity is 75735.20 FRS; calculate the amount of the borrowing.
c. Calculate the number of the annuities.

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5.An ordinary loan is payable back in 20 constant annuities at 10% compound interest. The last
amortization is greater than the first by 803 896.67 FRS.
a. Calculate the first amortization.
b. Determine the amount of the loan.
6.A loan is to be amortized in 10 constant annuities. Given that the 3rd amortization is 420, 740 FRS and
the sixth is 487, 060 Frs. Calculate:
a. The interest rate
b. The amount of the loan
c. The amount of the constant annuity.
7.A loan is redeemable in 6 constant annuities. The ratio of the 4th amortization to the 1st amortization is
1.124864. The difference between the 3rd and the 1st amortization is 430573 FRS. Calculate:
a) The rate of the loan
b) The 1st amortization.

8.A capital, K, is to be paid by 12 constant payments. You are given

- 𝐴1 + 𝐴2 = 13515.22
- 𝐴2 + 𝐴3 = 14528.86. Calculate A1, A12, the interest rate, the constant payment and the initial
capital.

9.A joint borrowing is payable by constant payment. You are giving the following information:
- 1st amortization 6548.80 FCFA
- 6th amortization 10309.38 FCFA
- 12th amortization 17771.21 FCFA. Calculate
a. The interest without using the financial table.
b. The initial amount of the loan with constant payment being 25548.80 FCFA.
c. The number of installments.
10. AZUR PLC gives you the data concerning a loan contracted in February N from a credit
establishment. The loan form below contains the relevant information
Amount: 8000000 Frs. Interest rate: 10% p.a
Period: 10 years yearly payment
Date: 01/02/N
1st Installment: 01/02/N+1 REDEMPTION: CONSTANT PAYMENT
Period Date of Due at start Interest Amortization Annuity
payment
1
2
a. Compute the constant payment.
b. Compute line 1 and line 2 of the redemption table.
c. Calculate the amount of the last amortization.
11. A financial institution burrowed money to be reimbursed at the end of each year in 24 constant
annuities. Given that the product of the first and third amortizations amounts to 2241613.400 Frs. and
the product of the fifth and the sixth amortizations amounts to 5064949.200 Frs. Calculate
a) The interest rate;
b) The first amortization;
c) The constant annuity;
d) The amount burrowed;
e) The amount paid and the unpaid amount after the payment of the 8th amortization;
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f) Constitute the 12th and the 13th line of the amortization table.

12. Mrs makaa borrowed the sum of 1,500,000fcfa at 12% interest rate compounded annually. The
loan should be amortized through constant annuities for a duration of five years. Two years later she
acquired some additional funds and decided to pay off the loan. What amount must be disbursed to pay
off the debt given that she made payments for the she two year?

13. Mr. Njoh got from UBC a loan which the repayment is done by n constant annuities. Let’s
suppose that Ip is the interest included in the annuity of the line p.
I. (1) What is the sum whose interest is equal to I1 – I2?
A2 1+ i
(2) Proof the relation here after =
I1 − I 2 i
II. You are given the following: I1 − I 2 = 14, 482.08
A2 = 304123.65
Vo = 12,000,000fcfa
Calculate the following
1. The interest rate of the loan
2. The 1st amortisation
3. The constant annuity
4. The number of annuities n.
14. The following information are extracted from the amortisation schedule of a loan
• The annuities are constant
• The interest of the last but one year is 1,025,000FCFA.
• The interest of the last year is 525,000FCFa.
• The difference between the interests paid at the end of the 1st two years is 338,420FCFa.
Work required
(a) What does the difference of interest paid at the end of 2 consecutive years represent?
(b) Calculate the rate of interest.
(c) Calculate the amount of the last amortisation
(d) Calculate the amount of the annuity
(e) Calculate the first amortisation
(f) The amount of the loan.

15. You are given below the amortisation table of a loan payable in 8 constant annuities
years Debt at Interest amortisation annuity Debt at
start end
5
6 1,499,552
7 1,363,231
8 136,323
Copy and complete the amortisation table

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16. You are given below the amortisation table of a loan payable in 8 constant annuities

years Debt at Interest amortisation annuity

start
1
2 441,561.76 518,916.51
3
4 605,264.22
... ... ... ... ...
... ... ... ... ...
... ... ... ... ...
n

(a) Reconstitute the first line of the amortisation table.

(b) Determine the number of amortisations n.
(c) Reconstitute the last line of the amortisation table.

17. The amortisation table of a loan payable by constant annuities shows:

• Interest paid the 2nd to the last year is 42000 fcfa.
• Interest paid the last year 22,000FCFA.
• The difference between the interests paid the 1st and the last year is 11,289.48 FCFA.
Calculate:
(a) The interest rate
(b) The last amortisation
(c) The constant annuity
(d) The 1st amortisation
(e) The initial amount of the loan.
18. A capital K is to be amortised by 12 constant annuities. Let M be the amortisation. You are given
M1+ M2 =13515.22
M2+M3 = 14528.86
Calculate:
a. the interest rate of the loan
b. the 1st and last amortisations
c. the capital borrowed
d. present the 10th line of the amortisation table.
19. A capital K is to be amortised by 8 constant annuities of prepaid interest. The sum of the
amortisations of the 1st two periods is 1 403 418.067 fcfa. And the ratio between the two is 1.11.
Calculate:
a. The interest rate of the loan
b. The 1st and last amortisations
c. The capital borrowed
d. Present the 6th line of the amortization table.
20. Given the following extract of the amortization table of a borrowing govern by a system of
constant annuities.
periods Capital owing at the interest amortization annuities
start of the period
2 72257 179498
4 205507
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Work required: complete the amortization table of this loan.

21. A businessman negotiated a loan. This loan will be reimbursable by 8 constant annuities.
Knowing that the first amortisation is 699,552.141FCFA and the last amortisation is
1,363,229.219FCFA. calculate
a) Th rate of interest
b) The amount of the constant annuity
c) The amount of the loan
d) Present the amortisation table

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DEBENTURE LOAN

1. A public limited company issues 10 000 debentures of nominal value, 20000FCFA at 5% redeemable
at a premium of 5000FCFA per debenture in six theoretical Constant annuities.
a) Calculate the constant annuity.
b) number of debentures redeemed at the first redemption.
c) Present the amortisation table of the loan.

2. What is the difference between ordinary loan and a debenture loan?

3. STANDARD BANK PLC issued 100,000 debentures of 10,000FCFA face value for a loan capital. It
is redeemable at par value through constant annuities in 25 years at 6% per annum.
a) Calculate the constant annuity of the loan
b) Calculate the number of redeemed debentures after the 10th draw.

4. KKC PLC has issued a debenture loan at 4%, redeemable at par in constant annuities of
3,200,600FCFA. The unpaid loan after the 10th draw is 35,585,500FCFA and the number of debentures
redeemed after the first draw is 120. Calculate
a) the face of the loan,
b) the duration of the loan and
c) the value of the loan.

5. Good Samaritan steel and Iron Company wants to issue a loan capital of 75,000,000FCFA divided into
6,000 debentures of 12,500FCFA each. These securities will be given for 12000FCFA and redeemed
for 13000FCFA. This loan will be repaid in 20years with interest calculated at 5% annually.
Two redemption systems are envisaged:
A. Repayment by means of 20 constant annuities
a) Calculate the 1st and 20th amortizations.
b) Indicate the succession rule of amortization
B. The loan can also be repaid in the following ways
- The first five amortization (A1 to A5) will be equal.
A
- The rest (As to A20) will be in arithmetic progression with a common difference of 1 example
2
A
A6 = A5 + 1
2
a) Calculate A1, A10 and A20.
b) Calculate the 1th, 10th and 20th annuities.

6. To finance the construction of the Kribi deep sea port, Cameroon Government has issued a debenture
loan whose characteristics are the following:
- Nominal value of a debenture is 900FCFA,
- Reimbursement of a debenture is 1000FCFA and
- Nominal interest rate is 5%.
- The loan is reimbursed by constant annuity and amortizations are determined by annual draw.
- You are given the extract of the amortization table: First amortization is 4,528,000FCFA
- Coupon (interest) paid the last year is 450000FCFA. Calculate
a) The number of debentures redeemed at the first draw.
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b) The number of debentures redeemed at the last draw

c) The duration of the loan.

7. WALLANG MADE Co LTD issued debentures with the following conditions

- Face value of debenture: 45,000 FCFA
- Redemption price of debenture: 50,000 FCFA
- The amount of the first amortization: 226, 400,000 FCFA
- The last coupon (paid the last year): 22,500,000 FCFA.
a) Calculate the number of debentures redeemed at the end of year one
b) Calculate the number of debentures redeemed at the end of the last year
c) Determine the duration of the debentures

8. TSAMO Construction Company issued debentures at 5.5%, the annuities are constant. The face as
well as the redemption price is 200 FCFA. The total amount of the loan redeemed after the 7th draw
is 1,844,600FCFA.
a) Calculate the number of debentures redeemed after the 7" draw.
b) Calculate the number of debentures redeemed after the 1st s draw (round your answer to the
nearest multiple of 5).
c) Determine the amount of the loan given that the annuity amounts to 498,00FCFA (theoretical
annuity is 498,130).
d) Calculate the amount of the theoretical annuity should the company redeems the debentures at
220FCFA for 15 years.

9. WUM COFFEE LTD issued a debenture loan of 30,000,000 FCFA; the face value of these debentures
is 10,000 FCFA and the issued price is 9,700FCFA. The debentures are redeemable at par value, in 15
years, at 6% per annum constant annuities.
a) Present the amortization schedule of this loan for the first five years.
b) Calculate the number and the value of the last amortization.

10. Mariana PLC issued debentures at 14% p.a, of face value the same as the redemption value of 10 000,
redeemed at 10 constant annuities. The total amount of loan redeemed after the 6" draw is
27,929,905FCFA, Calculate.
a) The number of debentures redeemed after the 6" draw.
b) The number of debentures redeemed after the 1s draw
c) The amount of loan.
d) The amount of theoretical annuity should the company redeem the debentures at 16,000FCFA.

11. A PLC floats on 2000 debentures on 01/01/2010 with nominal value 100,000F at the compounded
interest rate of 9% and redeemable at 120,000F by constant end-of-year payments with last
amortization amounted to 21,899,652.08535F. Calculate.
a) The value of each year constant payment.
b) The duration of the loan.
c) The value of the first amortization.
d) The capital due after 8 ends of year payments.
e) Prepare the first two line of the amortization schedule of the loan.

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12. A company capital structure consists of 10,000 debentures of nominal value of 5,000FCFA. and the
rate of 5% p.a. to be amortized over a period of 6 year at par.
Prepare the amortization table under the following conditions.
a) Constant amortization
b) Constant annuity.

13. You are given the following information relating to a loan:

- Date: 01-01-2007
- Issue of 10,000 debentures of 20,000FCFA. each nominal value
- Redemption price 22,500 FCFA. And first redemption on 31-01-2007
- Draws to be made randomly
- Annual interest rate is 4.5% payable on the 31 Dec every year
- Redemptions are through theoretical constant annuities of 16,555,925.92FCFA
a) Determine the number of debentures to be reimbursed at the first payment.
b) Present the first five lines of the amortization table of the debenture loan.

14. A group of debentures is redeemable at par value by annual drawing. The annuities are appreciably
constant and the successive numbers of debentures Amortised are rounded off to the nearest 10. The
following schedule represents an extract of the amortisation table.
Number of debentures Debentures
periods Amortisation Real annuities
not amortise amortised
1 39 800 000
2 2460 15 218 500
3 2590 39 765 500
4 12 441 000
A. i) What does the difference between the amounts of coupons No2 and No4 represent?
ii) What is the value of a coupon?
B. i) Calculate the number of debentures unamortised before the 3rd draw.
ii) Determine the nominal value of a debenture
iii) Determine the rate of the loan
iv) Determine the number of debentures issued.

15. KOUGANG international issued 1500 debentures of 1500 FCFA face value for a loan capital. It is
redeemable at par value through constant annuities in 25 years at an interest rate of 5%.
a. Calculate the number of debentures redeemed at the end of the first year.
b. Calculate the amount of the annuity (round off the answer to the nearest 10 000fcfa)
c. Calculate and establish the first four lines of the amortisation schedule (round the number of
debentures redeemed to the nearest unit).
d. Calculate and establish the last four lines of the amortisation schedule (round the number of
debentures redeemed to the nearest unit).

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16. ABENG AND SONS PLC issued debentures with the following conditions:
➢ Nominal value of a debenture = 100,000 FCFA.
➢ Redemption price of a debenture = 110,000 FCFA.
➢ The amount of the first amortization = 24,750,000 FCFA.
➢ Nominal interest rate = 5%
➢ The last interest coupon = 5,500,000 FCFA. Calculate
a. The redemption premium and the amortization rate.
b. The number of debentures redeemed at the end of the first year.
c. The number of debentures redeemed at the end of the last year.
d. The 4th, 5th, and 6th amortization in quantity.
e. The duration of the loan.

17. CCA has issued a debenture loan whose features are as follows:
- Number of debentures issued: 5000
- Nominal value of a debenture: 400 FCFA.
- Nominal interest rate: 5%
- Reimbursement price of a debenture: 500 FCFA.
- Number of theoretical constant annuities: 20
a. Calculate the number of debentures and the capital reimbursed after the 10th draw.
b. Calculate the number of debentures and the capital outstanding after the 8th draw.
c. Present the first 5lines and the last five lines of the amortisation table.

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