1.

Basic - FV PV

FV= PV*(1+I/Y)^n

PV=FV/(1+I/Y)^N

1.If Mr. X invests Rs.1000 in a saving bank account at 6% compounded annually what will be the
amount at the end of first year, second year and third year ?

2. Calculate the present value of Rs.600

a) received one year from now

b) received at the end of five years
c) received at the end of fifteen years
Assume 5% as the time preference rate

3.The amount an investor will have in 15 years if Rs1000 is invested today at an annual interest rate
of 9% will be

4. 50 years ago an investor bought a share of stock for Rs10. The stock has paid no dividends during
the period and yet it has returned 20%. If this is true, the share price is now closest to :

5. How much must be invested today at 8% interest, to accumulate enough to retire at Rs10,000
loan dues 7 years from today. The amount that must be invested is closest to:

6. How much must be invested today at 0% to have Rs100 in 3 years

7. An investment is expected to produce cash flows of Rs500, Rs200 and Rs 800 at end of next 3
years. If required rate of return is 12%, the present value of this investment is closest to :

2. EAR
a. Compute EAR if Stated annual is 10%. Compounded Annually, Compounded Semi-annually,
Compounded Quarterly Compounded Monthly, Compounded Daily

3. Combined EAR , PV and FV

A. If Mr. X invests Rs.1000 in a term-deposit at 6% interest compounded quarterly what will the
amount at the end of first year, second year ,third year ?

B. Rs.2000 is invested at annual rate of interest of 10%. What is the amount after 2 years if the
compounding is done? a) Annually b)Semi-annually c)Monthly d)Daily

C. A person opened an account on April ,1,2012 with a deposit of Rs. 800.The account paid 6% interest
compounded quarterly. On October 1,2012 he closed the account and added enough additional money
to invest in a 6-month deposit for Rs.1000 earning 6% compounded monthly.

p) How much additional amount did the person invest on October 1?

q) What was the maturity value of his Time deposit on April 1,2013?

D. Determine the compound amount and compound interest on Rs.1000 at 6% compounded semi-
annually for 6 years.

E. If Mr.X invests Rs.1000 in a term-deposit at 6% interest compounded semi-annually what will the
amount at the end of first year, second year, third year?
 A. Annuities
a. Ordinary annuity (Investments)– Basic PV and FV

1. Mr. ABC deposit Rs.2000 at the end of every year for 5 years in his saving account paying 5%
interest compounded annually. He wants to determine how much sum of money he will
have at the end of 5th year?

2. An investor will receive an annuity of Rs 4000 a year for 10 years. The first payment is to be
received 5 years from today. At a 9% discount rate, this annuity’s worth today is ?

3. An investor is to receive a 15 year, Rs 8000 annuity with first payment to be received today.
At an 11% discount rate, this annuity’s worth today is closest to:

b. Ordinary Annuity – Advanced logic

1. What is the PV of an annuity that pays Rs 550 per year at end of each of the next 10
years starting 7 years from now? Given appropriate discount rate is 9%

2. What is the PV of an annuity that pays Rs 350 per year at end of each of the next 5 years
starting 12 years from now? Given appropriate discount rate is 6%

3. A bond pays Rs 70 starting from next year for a total of 5 years. In addition, it pays Rs
1000 at the end of 5 years. Calculate the PV. Given appropriate discount rate of 8%

4. Suppose you bought a stock for Rs 100 today. The stock is expected to pay Dividend of
Rs 5 for the next 6 years and you expect to sell the stock at end of 6 years at Rs 120.
Given discount rate of 6%. Is it right to buy the stock at Rs100? (Hint: Compare 100 with
Present value of future payments)

c. Annuity Due (e.g Rent payments) (Beginning of the year) – Basic PV and FV (Try in excel
before lectures) --- Pre Read / Pre- D

1. What is the future value of an annuity that pays Rs120 per year at the beginning of each
of the next 3 years commencing today, if the cash flows can be invested at an annual
rate of 9%?
2. If you deposit Rs 500 in the bank today at the beginning of each of the next 5 years, how
much will you have 6 years from today at 6% interest.
3. Given discount rate of 10%, what is the present value of 3-year annuity that makes a
series of Rs 500 payments at the beginning of each of the next 3 years, starting today?

D. PV and FV with Uneven Cash Flows

a. Mr.X deposits at the end of each year Rs.500(1st year), Rs.1000(2nd year), Rs.1500(3rd
year),Rs.2000(fourth year) and Rs.2500 (fifth year) in his saving account for 5 years. The
interest rate is 5%.He wishes to find the future value of his investment at the end of 5th
year.
 b. Calculate the present value of following cash flows assuming discount rate of 10%:

Year 1 2 3 4 5
Cash flows 1000 1500 800 1100 400

c. Given 8.5% discount rate, an asset generates cash flows of Rs10 in year 1, Minus 20 in year
2, Rs 10 in year 3 and is sold for Rs 150 at end of year 4, has a present value of

d. Annuity with growth (PV and FV)

B. Perpetuity
a. Basic -PV

E. PV of Growing Perpetuity
a. A company paid a dividend of Rs.60 last year. The dividend stream commencing from
year one is expected to grow at 10% per annum for 15 years and then end .If the
discount rate is 21% what is the present value of expected series?

F. Solving for other things (Basically N, I/Y,PMT)

a. Madan bought a share 15 years ago for Rs.10. It is now selling for Rs.27.60.What is the
compound growth rate in the price of the share?

b. Y bought a TV costing Rs.13,000 by making a down payment of Rs.3000 and agreeing to

make equal payment for 4 years .How much would be each payment if the interest on
unpaid amount be 14% compounded annually?

c. Z plans to receive an annuity of Rs.5000 semi-annually for 10 years after he retires in 18

years. Money is worth 9% compounded semi-annually.
a) How much is required to finance the annuity?
b) What amount of single deposit made now would provide funds for annuity?
c) How much will Mr.Z receive from annuity?
 G. Sinking Fund

H. Loan Amortization
a. Suppose you have borrowed a three years loan of Rs.10,000 at 9% from your employer
to buy a motorcycle. If your employer requires three equal end of year repayments, then
what will be the annual instalments be and also draw a loan amortization schedule.

b. A firm borrows Rs.10,00,000 at an interest rate of 15% and the loan is to be repaid in 5
equal instalments payable at the end of the next 5 years. Calculate the annual
instalment amount and the loan amortisation schedule

c. Shyam borrows Rs.80,000 for a musical system at an annual interest of 15% The loan is
to be repaid in 12 equal monthly instalments, payable at the end of each month.
Prepare the loan amortisation schedule.

I. Retirement Planning

More Sums (Mix) :

1. Your father has promised to give you Rs.1,00,000 in cash on your 25Th birthday .Today is your
16th birthday. He wants to know two things:

a)If he decides to make annual payments into a fund after one year how much will each have to be if
the fund pays 8%?

b)if he decides to invest in lumpsum amount in the account after one year and let it compound
annually ,how ,much will the lumpsum be?

c)If in (a) the payments are made in the beginning of the year how much will be the value of
annuity?

Assuming the interest rate is 8% in each case.

Use Excel Functions:

To Solve below:

a) Suppose that you have Rs.100 to invest for a period of 5 years at an interest rate of 10% per year.
How much will you have accumulated at the end of this time period?

b) Suppose that you have Rs.1,250 today and you would like to know how long it will take you
double your money to Rs.2,500. Assume that you can earn 9% per year on your investment.

c) Mr. X is planning to send his daughter to college in 18 years. He will need Rs.100,000 at that time
in order to pay for tuition, room and board, party supplies, etc. If Mr.X has Rs.20,000 to invest today,
what compound average annual rate of return does he need in order to reach his goal?

d) If you deposited Rs.55,650 in a bank, which was paying a 15% rate of interest on a ten-year time
deposit. How much the deposit grow at the end of ten years?
e) AB limited is creating a sinking fund to redeem its preference capital of Rs.5 lakh issued on 6 April
2004 and maturing on 5 April 2015.The first annual payment will be made on 6 April 2004.The
company will make equal annual payments and expects that the fund will earn 12% per year.
How much will be the amount of sinking fund payment?

f) Jai-chand is planning for his retirement. He is 45 years of age today and would like to have
Rs.3,00,000 when he attains the age of 60.He intends to deposit a constant sum of money at
6.75% each year in the PPF in the SBI to achieve this objective. How much money should Jai
chand invest at the end of each year for the next 15 years to obtain Rs.3,00,000 at the end of
that period.
Formulas: