For Mba Level

Topics: Time value of money, Money, Time Pages: 5 (1598 words) Published: August 27, 2013
PROBLEMS CHAPTER 2

1) If you deposit Rs.100 in the bank today and it earns interest at a rate of 8% compounded annually, how much will be in the account 50 years from today?

2) On your birthday, your uncle gave you the money in his savings account. His only deposit was Rs.100 made 50 years ago. The savings account paid 8% compounded annually. How much money is in the account today?

3) A loaf of bread costs Rs.0.79 today. If its price increases by 6% per year, how much will an equivalent loaf cost in 20 years?

4) You ask a friend with some interest factor tables for PVF.09,6. He tells you that the number on his table is 1.677, but the heading of the table is torn off, so he does not know if 1.677 is PVF.09,6 or FVF.09,6. Without looking at another table, can you tell which it is? Why? If it is FVF.09,6, what is PVF.09,6?

5) How much money must you deposit in a savings account today to have Rs.20,000 in 20 years if the interest rate is 8% compounded annually?

6) A stock has paid dividends regularly for the last 20 years, starting with Rs.0.75 in 1964 and rising to Rs.4 in 1984. If these dividends have been growing at a constant rate, what has that rate been for the last 20 years?

7) Your sister borrows Rs.1,000 and promises to repay Rs.2,000. If you want at least a 5% return on your loan, within how many years must she pay you back?

8) Which would you prefer: Rs.1,000 now, Rs.2,000 in 5 years, or Rs.3,000 in 10 years if your time value of money is 12%?

9) Which would you prefer: Rs.3,000 now, Rs.2,000 that was placed in a savings account 5 years ago, or Rs.1,000 that was placed in a savings account 10 years ago if a) your time value of money is 12%.

b) your time value of money is 16%.
c) your time value of money is 8%.

10) Using a discount rate of 12%, find the present value of Rs.100 received at the end of each of the next four years a) using only the PVF table.
b) using only the PVFA table.

11) Using a discount rate of 12%, find the future value as of the end of year 4 of Rs.100 received at the end of each of the next four years a) using only the FVF table.
b) using only the FVFA table.
c) using only your answer to problem 10 and the fact that FVF.12,4 = 1.5735. 12) You ask a friend with some interest factor tables for PVFA.09,6 and she tells you that the number on her table is 7.5233, but the heading on the table is torn off, she does not know if 7.5233 is PVFA.09,6 or FVFA.09,6. Without looking at another table, can you tell which it is? Why?

13) How much must you save at the end of each of the next 10 years to have Rs.100,000 at the end of the 10th year if the interest rate is 10%?

14) If the discount rate is 12%, what is the present value of Rs.200 received at the end of each of the next 10 years except for the fourth year (i.e., you get payments at the end of years 1,2, 3, 5, 6, 7, 8, 9, and 10)?

15) If the discount rate is 14%, what is FV10 of Rs.300 received at the end of each of the next 10 years except for the fourth year?

16) What is the present value of a seven-year Rs.1,000 annuity if the first Rs.1,000 payment is made four years from today and the discount rate is 15%?

17) What is FV12 of a 10-year Rs.500 annuity for which the first Rs.500 payment is made at the end of the 3M year (and the 10th payment at the end of the 12th year) if the discount rate is 16%?

18) What is the present value of a 20-year annuity due with Rs.1,000 payments if the discount rate is 8%? [Hint: Assume that a payment made at the end of one year (as in an ordinary annuity) has the same present value as a payment made at the beginning of the next year (as in an annuity due).

19) What is FV10 of a 10-year annuity due with payments of Rs.1,000 if the discount rate is 10%?

20) How much must you deposit at the end of each year for 15 years...
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