CM-1 The Time Value of Money CHAPTER 1

[$787.40]

( )

( )

[14658.125]
[16501.93]

FUTURE TRACK EDUTECH PVT LTD| North Campus:116-118, Basement, Mall Road, GTB Nagar Delhi-09, 1
South Campus: 282, Basement Satya Niketan , New Delhi | www.futuretrack.org|011- 45024949, 991024949
CM-1 The Time Value of Money CHAPTER 1

[1560.12]
2. N [1112.965]
[1228.94]
[726.50]

Compound/Effective rate of discount

( )

]
[12000]

[8802.53]
[8609.34]

(i)
(ii)
(iii)
(iv)
(v)
(vi)

(i)
(ii)
(iii)

[294000]

[0.04611]

[0.04494]

FUTURE TRACK EDUTECH PVT LTD| North Campus:116-118, Basement, Mall Road, GTB Nagar Delhi-09, 2
South Campus: 282, Basement Satya Niketan , New Delhi | www.futuretrack.org|011- 45024949, 991024949
Ans1.
Accumulation of 100 after 2.5 yrs
= 100 1 + 2.5(𝑖)
= 100 1 + 2.5(0.1)
= 125
Accumulation of 125 after T months at 0.16(simple rate) is 140
𝑇
140 = 125 1 + 0.16
12
12 140
−1 =𝑇
0.16 125
𝑠𝑜, 𝑇 = 9𝑚𝑜𝑛𝑡ℎ𝑠
Ans2.
PV of 1000(after 3 years) at 0.09(simple interest)
𝐴𝑉
=
1 + 𝑖𝑛
1000
=
1 + 0.09(3)
= 787.40
Ans3.
Accumulated value of fund P after 5 years
= 100 1 + 0.04(5)
= 120
Accumulated value of fund Q after 5 years
= 118.5 1 + 𝑖(5)
As it is given that accumulated value of both funds is equal after 5
years. Hence,
120 = 118.5(1 + 5𝑖)
1 120
−1 =𝑖
5 118.5
𝑖 = 0.25316%
Ans4.
Accumulation of 300 after 6 years at 0.035 P.A(simple interest)
= 300 1 + 0.035(6)
= 363
Ans5.
Assuming 5% as simple interest
𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑒𝑎𝑟𝑛𝑒𝑑 𝑏𝑦 1500 𝑖𝑛 𝑥 𝑑𝑎𝑦𝑠 𝑖𝑠
𝑥
1500 1 + 0.05 − 1500 = 25
365
𝑥
1500 0.05 = 25
365
365 25
𝑥= = 121.67
0.05 1500
Ans6.
Accumulation after 18 years is 80000
Compound interest rate is 6% P.A
𝐴𝑉 80000
𝑃𝑉 = = = 28027.50
(1 + 𝑖) (1 + 0.06)
Ans7.
PV=800
i=5.25%P.A
accumulation after 15 years
= 800(1 + 0.0525)
= 1723.54
Ans8.
AV=2000
PV=1000
I=6% P.A Compound interest
So,
2000 = 1000(1 + 0.06)
𝑛𝑙𝑛(1.06) = ln(2)
ln(2)
𝑛=
ln(1.06)
𝑛 = 11.89(𝑎𝑝𝑝𝑟𝑜𝑥. 12 𝑦𝑒𝑎𝑟𝑠)
Ans9.
Interest earned by 600 in 2 years is 264 or
600(1 + 𝑖) − 600
𝑠𝑜, 600((1 + 𝑖) − 1) = 264

264
𝑖= +1 −1
600
𝑖 = 0.2(20% 𝑃. 𝐴)
Accumulation of 2000 for 3 years will be
= 2000(1 + 0.2)
= 3456
Ans10.
Total accumulation period=127.5 years(4.5+20+100+3)
𝑃𝑉 = 10
I=5%P.A
.
𝐴𝑉 = 10(1 + 0.05) = 5030.78
If I=10%P.A
.
then, 𝐴𝑉 = 10(1 + 0.1)
𝐴𝑉 = 1894817.37
Ans11.
𝑖( )
(𝑒𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑒𝑣𝑒𝑟𝑦 𝑞𝑢𝑎𝑟𝑡𝑒𝑟) = 5%
4
𝑇ℎ𝑒𝑛, 𝐴𝑐𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑜𝑓 1000 𝑎𝑡 𝑒𝑛𝑑 𝑜𝑓 15 𝑦𝑒𝑎𝑟𝑠
×
𝑖( )
= 1000 1 +
4
= 1000(1 + 0.05)
= 18679.18
Ans12.
𝑖( )
= 8%𝑃. 𝐴
Accumulation factor is given as 3
So,
×
𝑖( )
3= 1+
4
0.08
ln(3) = 4𝑥𝑙𝑛 1 +
4
ln(3)
𝑥= = 13.87 𝑦𝑒𝑎𝑟𝑠
4 ln(1 + 0.02)
Ans13.
(𝑖)𝑖 ( )
= 12%𝑃. 𝐴

𝑖
(𝑖𝑖) = 10%
1
3
(𝑖𝑖𝑖)𝑖 ( )
= 12%𝑃. 𝐴
(𝑖𝑣)𝑖 = 8%𝑃. 𝐴
𝑖( )
(𝑣) = 4%
3
Ans14.
𝑖( )
= 8%𝑃. 𝐴
PV=500
×
𝑖( )
𝐴𝑉 = 𝑃𝑉 1 +
4
0.08
𝐴𝑉 = 500 1 +
4
𝐴𝑉 = 742.97
Ans15.
𝑖( )
= 18%𝑃. 𝐴
𝑃𝑉 = 8000
×
𝑖( )
𝐴𝑉 = 𝑃𝑉 1 +
3
0.18
𝐴𝑉 = 8000 1 +
3
𝐴𝑉 = 32391.47
Ans16.
Nominal interest convertible monthly=𝑖 ( )

𝑠𝑜,
×
𝑖( )
𝐴𝑉 = 𝑃𝑉 1 +
12
( )
𝑖( )
12500 = 10500 1 +
12

12500
12 − 1 = 𝑖( )
10500

5.82587%𝑃. 𝐴 = 𝑖 ( )

Ans17.
×
𝑖( )
650 = 500 1 +
4

650
4 − 1 = 𝑖( )
500

𝑖( )
= 0.05281
Ans18.
(𝑖) 𝑖 ( )
= 12%𝑃. 𝐴
×
𝑖( )
𝐴𝑉 = 5000 1 +
2
0.12
𝐴𝑉 = 5000 1 +
2
𝐴𝑉 = 16035.67

(𝑖𝑖) 𝑖 = 12%𝑃. 𝐴
 ×
𝑖
𝐴𝑉 = 5000 1 +
1
2
0.12
𝐴𝑉 = 5000 1 +
0.5
𝐴𝑉 = 14658.12
(𝑖𝑖𝑖) 𝑖 ( )
= 12%𝑃. 𝐴
×
𝑖( )
𝐴𝑉 = 5000 1 +
12
0.12
𝐴𝑉 = 5000 1 +
12
𝐴𝑉 = 16501.93
Ans19.

(𝑖) 𝑖 = 15%𝑃. 𝐴
×
𝑖
𝑃𝑉 = 10000 1 +
1
3

0.15
𝑃𝑉 = 10000 1 +
1
3
𝑃𝑉 = 1560.12
(𝑖𝑖) 𝑖 ( )
= 15%𝑃. 𝐴
( × )
𝑖( )
𝑃𝑉 = 10000 1 +
3
 0.15
𝑃𝑉 = 10000 1 +
3
𝑃𝑉 = 1112.96
(𝑖𝑖𝑖) 𝑖 = 15%𝑃. 𝐴
𝑃𝑉 = 10000(1 + 𝑖)
𝑃𝑉 = 10000(1 + 0.15)
𝑃𝑉 = 1228.94
𝑖( )
(𝑖𝑣) = 6%
3
×
𝑖( )
𝑃𝑉 = 10000 1 +
3
𝑃𝑉 = 10000(1 + 0.06)
𝑃𝑉 = 726.5
Ans20.
𝑖 = 5%𝑃. 𝐴
Let shyam share be x
Then, ram share becomes 5887-x
Shyam share at end of 9 years
= 𝑥(1 + 0.05)
Ram share at end of 11 years
= (5887 − 𝑥)(1 + 0.05)
𝑡ℎ𝑒𝑛, 𝐴. 𝑇. 𝑄
𝑥(1.05) = (5887 − 𝑥)(1.05)
5887
(1.05) = −1
𝑥
 5887
𝑥= = 3087
(1.05) + 1
∴ 𝑠ℎ𝑦𝑎𝑚 𝑠ℎ𝑎𝑟𝑒 𝑖𝑠 3087 𝑜𝑢𝑡 𝑜𝑓 5887
Ans21.
𝑃𝑉 = 𝐴𝑉(1 − 𝑛𝑑)
𝑃𝑉 = 1000 1 − (0.04)(20)
𝑃𝑉 = 200
Ans22.
𝐴𝑉 = 𝑃𝑉(1 − 𝑑)
𝐴𝑉 = 5000(1 − 0.05)
𝐴𝑉 = 13947.54
Ans23.
𝐴𝑉 = 18375.65
𝑃𝑉 = 15000
𝑛 = 3𝑦𝑒𝑎𝑟𝑠
𝑡ℎ𝑒𝑛,
𝐴𝑉 = 𝑃𝑉(1 − 𝑑)
18375.65 = 15000(1 − 𝑑)

18375.65
𝑑 = 1−
15000
𝑑 = 6.542%𝑃. 𝐴
Ans24.
𝑃𝑉 = 𝐴𝑉(1 − 𝑛𝑑)
3
𝑃𝑉 = 5000 1 − 0.04
12
𝑃𝑉 = 4950
Ans25.
𝑃𝑉 = 𝐴𝑉(1 − 𝑛𝑑)
90
900 = 𝐴𝑉 1 − (0.05)
365
𝐴𝑉 = 911.23
Ans26.
𝑃𝑉 = 𝐴𝑉(1 − 𝑑𝑛)
78
394.8 = 400 1 − 𝑑
365
365 394.8
𝑑= 1− = 0.06083
78 400
Ans27.
𝑃𝑉 𝑢𝑠𝑖𝑛𝑔 𝑠𝑖𝑚𝑝𝑙𝑒 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑟𝑎𝑡𝑒
1
= 100 1 − 0.06
2
= 97
𝑃𝑉 𝑢𝑠𝑖𝑛𝑔 𝑒𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒
𝑃𝑉 = 𝐴𝑉(1 + 𝑖)
𝑠𝑜,

97 = 100(1 + 𝑖)
𝑖 = (0.97) − 1 = 6.282%
Ans28.
(𝑖) 𝑑(𝑠𝑖𝑚𝑝𝑙𝑒) = 4% 𝑝𝑒𝑟 ℎ𝑎𝑙𝑓 𝑦𝑒𝑎𝑟
𝑃𝑉 = 20000 1 − 0.04(2 × 8)
𝑃𝑉 = 7200
(𝑖𝑖) 𝑑 = 5% 𝑝. 𝑎
𝑃𝑉 = 20000 1 − (0.05 × 8)
𝑃𝑉 = 12000
(𝑖𝑖𝑖) 𝑑 ( )
= 10%𝑝. 𝑎
×
𝑑( )
𝑃𝑉 = 20000 1 −
4
×
0.1
𝑃𝑉 = 20000 1 −
4
𝑃𝑉 = 8895.65
(𝑖𝑣) 𝑑 ( )
= 10%𝑝. 𝑎
×
𝑑( )
𝑃𝑉 = 20000 1 −
2
0.1
𝑃𝑉 = 20000 1 −
2
𝑃𝑉 = 8802.53
(𝑣) 𝑑 = 10%𝑝. 𝑎
𝑃𝑉 = 20000(1 − 𝑑)
𝑃𝑉 = 20000(1 − 0.1)
𝑃𝑉 = 8609.34
𝑑( )
(𝑣𝑖) = 6%
2
×
𝑑( )
𝑃𝑉 = 20000 1 −
2
𝑃𝑉 = 20000(1 − 0.06)
𝑃𝑉 = 7431.48
Ans29.
𝑖( )
(𝑖) = 4%
4
×
𝑖( )
𝐴𝑉 = 1000 1 +
4
𝐴𝑉 = 1000(1 + 0.04)
𝐴𝑉 = 4801.02
𝑖( )
(𝑖𝑖) = 4%
2
×
𝑖( )
𝐴𝑉 = 1000 1 +
2
𝐴𝑉 = 1000(1 + 0.04)
𝐴𝑉 = 2191.12
𝑖( )
(𝑖𝑖𝑖) = 0.04
12
×
𝑖( )
𝐴𝑉 = 1000 1 +
12
𝐴𝑉 = 1000(1 + 0.04)
𝐴𝑉 = 110662.56
𝑑( )
(𝑖𝑣) = 0.04
2
( × )
𝑑( )
𝐴𝑉 = 1000 1 −
2
𝐴𝑉 = 1000(1 − 0.04)
𝐴𝑉 = 2262.43
𝑑( )
(𝑣) = 0.04
4
( × )
𝑑( )
𝐴𝑉 = 1000 1 −
4
𝐴𝑉 = 1000(1 − 0.04)
𝐴𝑉 = 5118.59
𝑑( )
(𝑣𝑖) = 0.04
12
×
𝑑( )
𝐴𝑉 = 1000 1 −
12
𝐴𝑉 = 1000(1 − 0.04)
𝐴𝑉 = 134107.18
Ans30.

𝑖
(𝑖) = 5%
1
2
×
𝑖
𝑃𝑉 = 1000 1 +
1
2
.
𝑃𝑉 = 1000(1 + 0.05)
𝑃𝑉 = 843.01
𝑖( )
(𝑖𝑖) = 0.05
3
 ( × )
𝑖( )
𝑃𝑉 = 1000 1 +
3
𝑃𝑉 = 1000(1 + 0.05)
𝑃𝑉 = 358.94
𝑑( )
(𝑖𝑖𝑖) = 0.05
2
×
𝑑( )
𝑃𝑉 = 1000 1 −
2
𝑃𝑉 = 1000(1 − 0.05)
𝑃𝑉 = 487.67
Ans31.
𝐴𝑉 = 300000
𝑑 = 8%𝑝. 𝑎
3
𝑃𝑉 = 300000 1 − (0.08)
12
𝑃𝑉 = 294000
𝐴𝑛𝑠32.
𝑃𝑉 𝑜𝑓 1 𝑢𝑠𝑖𝑛𝑔 𝑏𝑜𝑡ℎ 𝑟𝑎𝑡𝑒𝑠 𝑎𝑟𝑒 𝑒𝑞𝑢𝑎𝑙
So,
28
1 − (0.045) = (1 + 𝑖)
365

28
𝑖 = 1 − (0.045) −1
365
𝑖 = 0.04611
Ans33.
𝑢𝑠𝑖𝑛𝑔 𝑎𝑛𝑛𝑢𝑎𝑙 𝑒𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡

100 = 98.91(1 + 𝑖)

100
𝑖= − 1 = 0.04494
98.91
Ans34.
𝑈𝑠𝑖𝑛𝑔 𝑒𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑝. 𝑎
700 = 500(1 + 𝑖)
.
7
𝑖= − 1 = 0.03422
5