TIME VALUE OF MONEY

Q1. Rs. 1,000 is invested at 10% for 3 years. Calculate the compound value at the end of third
year.
Q2. Calculate the compound value when Rs. 1,00,000 is invested for 3 years & compounded
semi-annually at 10% p.a.
Q3. Mr. A invests Rs.5,00,000; Rs.10,00,000 & Rs. 20,00,000 at the end of each year for 3 years.
Calculate the compound value at the end of 3 years compounded annually when interest is
charged at 10% p.a.
Q4. Find the compound value when three equal yearly payments of Rs.2,00,000 are made into
an account that yield 7% compound interest.
Q5. Rs. 5,00,000 is invested every year @ 10% with a bank. Calculate the compound value at the
end of the year.
Q6. Calculate the future value for the following cases:

CASE AMOUNT (Rs.) RATE OF RETURN (r%) NO. OF YEARS (n)

S
A 40,000 8 4
B 2,40,000 10 5
C 1,25,000 11 10
D 2,12,000 9 8
P 96,000 10 9
Q 47,000 12 16
R 56,000 7 14
S 1,28,000 14 12
Q7. Calculate the present value of future cash inflows that would be received over the next four
years at 10%p.a. for both the cases:

YEARS (N) 1 2 3 4
A-CASH FLOWS (RS.) 1,00,000 2,00,000 3,00,000 4,00,000
B-CASH FLOWS (RS.) 4,00,000 3,00,000 2,00,000 1,00,000
Q8. Calculate the present value of Rs.5,600 received annually for 4 years when discounting rate
is 10% pa.
Q9. Mr. A would receive Rs.10,00,000 at the end of year 1; Rs.6,00,000 at the end of year 2 and
Rs.8,00,000 at the end of year 3 & 4 respectively. Calculate the present value when rate of
return is 8%.
Q10. A company decides to retire bonds of Rs.80,00,000 at the end of 4 years. What is the
amount that should be deposited every year @10% rate of interest to receive Rs.80,00,000
after 4 years.
Q11. Ms. Saumya borrowed Rs.10,00,000 to be repaid after 4 years at 10% pa. Find out
the instalment amount.
Q12. What is the present value of a perpetuity paying Rs.500 each month, if the monthly
interest rate is a constant 0.5% per month?
Q13. Under what interest rates would you prefer a perpetuity that pays Rs.2,000 per year
beginning next year to a onetime payment of Rs.40,000?
 VALUATION OF EQUITY SHARES

Q1. Mr. A holds an equity share giving him an annual dividend of Rs.20. he expects to sell the
share for Rs.180 at the end of the year. Calculate the value of the share if the required rate
of return is 12% pa.
Q2. Dividend of Rs.3 and a selling price of Rs.18 is expected after 1 year from a particular share.
Calculate value of share today when equity capitalization rate is 20% pa.
Q3. A share having face value of Rs.100 is expected to pay dividend of 12% at the end of year 1
and the growth rate in dividends is estimated to be 3% pa. If the investor has a required rate
of return of 16% pa, then calculate the value of equity share.
Q4. Calculate present value of an equity share that offers dividend of Rs.40/share and its
capitalization rate is 15% pa. Also suggest whether the share should be bought today at
(a) Rs.200 or (b) Rs.300.
Q5. Calculate present value of an equity share that offers dividend of Rs.40/share and its
capitalization rate is 15% pa. The dividend is expected to grow at 10% pa.
Q6. The current market price of a share is Rs.50. The company is expected to pay a dividend of
Rs5/share with an annual growth of 7% pa. If the investor’s required rate of return is
(a) 9% pa or (b) 11% pa should he buy the share?
Q7. ABC Ltd. has just paid its annual dividend of Rs.3/share on the equity shares having face
value of Rs.10 each. The dividend rate is expected to grow at the rate of 8% pa forever.
Calculate the value of share and suggest whether it should be bought today at Rs.50 if equity
capitalization is (a) 14% pa or (b) 16% pa.
Q8. Equity shares of XYZ Ltd. are currently selling at Rs.60 per share. The company is expected to
pay a dividend of Rs.3 per share after Year 1, with a growth rate of 8% pa. Find the implied
required rate of return of the equity investors.
Q9. A firm had paid dividend at Rs.2 per share last year. The estimated growth of the dividends
from the company is estimated to be 5% pa. Determine the estimated market price of the
equity share if the cost of equity is 15.5% and the estimated growth rate of dividends is
(a) rises to 8% (b) falls by 2%.
Q10. A firm is paying a dividend of Rs.1.50/share. The rate of dividend is expected to grow at
10% pa for next 3 years and 5% pa thereafter indefinitely. Find out the fair value of share
given that the required rate of return is 15% pa.
Q11. An investor has invested his savings in a company from where dividends are expected to
grow at 20% pa for 15 years & thereafter at 7% pa for perpetuity. Find out the value of
equity share given that the current dividend per share is Re.1 & required rate of return of
the investor is 9% pa.
Q12. The earnings per share of ABC Ltd. are Rs.1.50. The investors expect that a PE ratio of 32 is
appropriate for this company. Calculate the price of the share. If the share is currently
available for (a) Rs.45 or (b) Rs.50, should an investor buy it?
Q13. Calculate the value of equity shares from the following:

Equity Share Capital (Rs.20 each) Rs. 50,00,000

Reserves and Surplus Rs. 5,00,000
15% Unsecured Loans Rs. 25,00,000
12.5% Secured Loans Rs.10,00,000
Fixed Assets Rs. 30,00,000
Investments Rs. 5,00,000
Operating Profits Rs. 25,00,000
Tax Rate 50%
P/E Ratio 12.5
Q14. A ltd. recently paid a dividend of Rs3.50 per share. The dividends are growing at 10% pa
and equity capitalization rate is 12% pa. Find out the P/E ratio if EPS of the company is Rs.7.

RISK & RETURN

Q1. ABC ltd. Is evaluating the rate of return on two of its assets, I & II. Asset I was purchased an
year ago for Rs.4,00,000 & since then it has generated cash flows of Rs.16,000. Presently it
can be sold for a price of Rs.4,30,000. Asset II was purchased a few years ago & its market
price in the beginning and at the end of the current year was Rs.2,40,000 & Rs.2,36,000
respectively. Asset II generated cash flow of Rs.34,000 during the year. Find out the rate of
return on these assets.

Q2. Mr. A buys an equity share of a company having a face value of Rs.100 at a price of Rs.120.
He expects to earn a dividend of Rs.10 on the share and plans to sell it off at the end of the
year for a price of Rs.140. Calculate holding period rate of return.

Q3. The market price of an equity share is Rs.60. Dividend paid at the end of the year is Rs.2.40
and the price at the end of the year is Rs.69. Calculate the return of this share?

Q4. Calculate expected return from the following:

Ri .20 .21 .22 .23 .24
Pi .15 .10 .60 .10 .05

Q5. Calculate expected return from the following:

Ri 25% 30% 40% 50% 60%
Pi .10 .25 .30 .25 .10

Q6. Calculate expected return from the following:

Ri 25% 26% 27% 28% 29%
Pi .10 .20 .40 .15 .15

Q7. Following are the possible returns and their probabilities for a security. Find out the
expected value of return and the standard deviation.
Probabilities Returns
.05 -20%
.10 -10%
.20 10%
.25 15%
.20 20%
.15 25%
.05 30%

Q8. Mr. Mohan invests Rs.10,00,000 in 5 securities. He is interested in finding out his return.
Security Amount (in Rs.) Return
A 3,00,000 15%
B 2,00,000 14%
X 2,50,000 9%
Z 1,50,000 12%
O 1,00,000 18%

Q9. Find risk and return of the following 5 securities:

Security Probability Return (%)
1 0.8 30%
2 0.4 40%
3 0.5 50%
4 0.6 60%
5 0.7 70%
Q10. The market price of an equity share is Rs.100. Find out the expected return and
variability of returns of the equity share when following information is available in respect of
dividends, market price and the expected market condition after one year:

Market Probability Market Price Dividend

Condition (Rs.) (Rs.)
Good 0.25 115 9
Normal 0.50 107 5
Bad 0.25 97 3

Q11. The return on two securities ‘X’ & ‘Z’ is given below, select the security according to
risk and return:
Return on Probability Return on Security
Security ‘X’ (%) ‘Z’ (%)
8 0.8 1
5 0.5 4
2 0.4 6

Q12. What would be the average expected risk and return of Security A when the returns
from this security for different time periods are as follows:
Time period Probability Return
March 0.1 0.3
April 0.4 0.2
May 0.5 0.1
June 0.3 0

Q13. An equity share is priced Rs.50. the price at the end of the year and their
probabilities are given below. The company does not pay any dividend.
a. What is the return that an investor can expect from this stock?
b. Analyze the standard deviation of the returns.
c. Calculate variance.
d. Determine Rho.
Year end price Probability
60 0.1
65 0.2
70 0.4
75 0.2
80 0.1

Q14. An investor has to choose from two securities Q & P. The following are their rates of
return and probabilities:
Q P
Return (%) Probability Return (%) Probability
20 0.1 13 0.1
16 0.4 16 0.2
10 0.3 22 0.3
3 0.2 25 0.4

Q15. The market price of a share is Rs.155. following information is available about
market condition, dividends and market price after one year from now. Find the expected
return of the share and the variability of the return.
Market Condition Probability Market Price Dividend
Bullish 0.25 200 15
Stable 0.50 160 10
Bearish 0.25 150 5

Q16. Calculate Beta for the Company A stock when monthly return data (in percent) for
Company A and the NSE index for an 8 month period is presented below:
Month Company A NSE
 1 -0.75 -0.45
2 5.40 -0.52
3 -3.55 -1.08
4 3.41 1.64
5 9.25 6.67
6 2.36 1.21
7 -0.45 0.72
8 5.51 0.84

Q17. Calculate Beta for Mahindra Auto Stock with the help of the data presented below:
Days Index Mahindra Auto
1 904.95 597.80
2 874.25 570.80
3 874.25 582.95
4 847.95 559.85
5 849.10 554.60
6 835.80 545.10
7 816.75 519.15
8 843.55 560.70
9 835.55 560.95
10 839.50 597.40

Q18. Find total risk of the following two securities:

Security RA (%) RB (%)
1 2 3
2 4 7
3 5 8
4 8 15
5 10 24

Q19. Calculate Beta from the following:

Time Period RS (%) RM (%)
1 12 10
2 11 9
3 10 7
4 13 12
5 13 11
6 12 11
7 11 8
8 10 7
9 10 9
10 9 8

Q20. Calculate total risk as well as systematic risk from the following:
Time Period RS (%) RM (%)
1 12 15
2 11 13
3 13 17
4 9 11
5 10 14
6 8 9
7 3 5
8 7 9
9 5 6
10 6 7