Financial Management

Time Value of Money

Practice Questions

Q1 . Assume that a 10 years savings annuity of INR. 2,000 per year is

beginning at year zero.
The retirement annuity (receiving) is to begin 15 years from now (the first
payment is to be received in year 15) and has to provide 20 year annuity.
If the investment plan is arranged through a saving bank that pays 7% interest
per year on the deposited funds. How much annual annuity will be received by
the investor ?

Q 2. Mr. X borrows INR. 1,00,000 at 8% annual interest rate. He is required to

make equal annual payments for 6 years. However, at the time of 4th
payment, he elects to pay off the entire loan. How much amount he has to pay
during the 4th payment.

Q3. A firm require INR. 20,00,000 to expand its plant. The firm makes
15% down payment & borrows the remainder at 9% interest rate.
The loan is to be repaid in 8 equal instalments beginning 4 years from
now. What is the size of the required loan payment in each instalment ?

Q4. A company offers to refund an amount of INR. 44,650 at the end of 5

years for a deposit of INR. 6,000 made annually. Find out the implicit rate
of interest offered by the company.