1. You expect to receive Rs 100,000 after 5 years. The annual rate of interest is 10%.

What is
the value now?

2. Exactly 20 years from now you will start receiving a pension of Rs10000 a year. The
payment will continue for twenty years. How much is pension worth now, assuming rate is
15% per year?

3. Ravikiran deposits Rs.500,000 in a bank now. The interest rate is 9 percent and
compounding is done quarterly. What will the deposit grow to after 5 years?

4. You deposit Rs 10,000 each year for 10 years in a bank. The interest rate is 10 percent. How
much is the worth of your deposits at the end?

5. You plan to go abroad for higher studies after working for the next five years and
understand that an amount of Rs.2,000,000 will be needed for this purpose at that time. You
have decided to accumulate this amount by investing a fixed amount at the end of each year
in a safe scheme offering a rate of interest at 10 percent. What amount should you invest
every year to achieve the target amount?

6. What is the current value of an income stream which provides Rs.1,000 a year for the first
three years and Rs.5,000 a year forever thereafter, if the discount rate is 12 percent?

7. Suppose you currently have $2,000 and plan to purchase a 3-year certificate of deposit (CD)
that pays 4% interest compounded annually. How much will you have when the CD
matures?

8. An investment promises to pay Rs 2,000 at the end of each year for the next 3 years and Rs
1,000 at the end of each year for years 4 to 7. a) What maximum amount will you pay for
such investment if the required rate is 13%? b) If the payments are received at the
beginning of each year what maximum amount will you pay for investment?

9. You have an expected liability (cash outflow) of $500,000 in 10 years, and you use a
discount rate of 10%. a. How much would you need right now as savings to cover the
expected liability? b. How much would you need to set aside at the end of each year for the
next 10 years to cover the expected liability?

10. Your company is taking a loan of 1,000,000, carrying an interest rate of 15 percent. The
loan will be amortised in five equal instalments. What fraction of the instalment at the end
of second year will represent principal repayment?

11. You have just taken a 30-year mortgage loan for $200,000. The annual percentage rate on
the loan is 8%, and payments will be made monthly. Estimate your monthly payments.
12. You are planning to buy a car worth $20,000. Which of the two deals described below
would you choose: 1) the dealer offers to take 10% off the price and lend you the balance
at the regular financing rate (which is an annual percentage rate of 9%). 2) the dealer offers
to lend you $20,000 (with no discount) at a special financing rate of 3%. (Assume 4 years)
13. Assume that a deposit is to be made at year zero into an account that will earn 8%
compounded annually. It is desirable to withdraw $5,000 three years from now and $7,000
six years from now. What is the size of the year zero deposit that will produce these future
payments.

14. New York State has a pension fund liability of $25 billion, due in 10 years. Each year the
legislature is supposed to set aside an annuity to arrive at this future value. This annuity is
based on what the legislature believes it can earn on this money. a. Estimate the annuity
needed each year for the next 10 years, assuming that the interest rate that can be earned on
the money is 6%. b. The legislature changes the investment rate to 8% and recalculates the
annuity needed to arrive at the future value. It claims the difference as budget savings this
year. Do you agree?

15. You have a relative who has accumulated savings of $ 250,000 over his working lifetime
and now plans to retire. Assuming that he wishes to withdraw equal instalment from these
savings for the next 25 years of this life, how much will each instalment amount to if he is
earning 5% on his savings?

16. A company is planning to set aside money to repay $100 million in bonds that will be
coming due in 10 years. If the appropriate discount rate is 9%, a. how much money would
the company need to set aside at the end of each year for the next 10 years to be able to
repay the bonds when they come due? b. how would your answer change if the money were
set aside at the beginning of each year?

17. A company has issued bonds of Rs 50 lakh to be repaid after 7 years. How much should
the company invest in a sinking fund earning 12 percent in order to be able to repay bonds?

18. Assume that a $20,00,000 plant expansion is to be financed as follows: the firm makes a
15% down payment and borrows the remainder at 9% interest rate. The loan is to be repaid
in 8 equal annual instalments beginning 4 years from now. What is the size of the required
annual loan payments.

19. Compute the worth of a bond that promises to pay interest of Rs 150 a year for thirty years
and Rs 1000 at maturity. The first interest payment is paid one year from now. Use a
discount rate of 8 percent.

20. You buy a new Porsche convertible, put no money down, and agree to make the payments
in equal monthly instalments over the next 60 months. If the car costs $ 60,000 and the car
dealer charges you 1% a month (as interest), estimate your monthly payments.
21. Singapore Airlines, entered into a contract to pay $ 2 billion in 8 years. Assume that it wants
to set aside the money today to ensure that it will have $ 2 billion at the end of the eighth
year, and that it can earn 7% on its investments. How much amount should the airlines set
aside?

22. A potential investor is considering the purchase of a bond that has the following
characteristics: the bond pays 8% per year on its $1,000 principal, or face value. The bond
will mature in 20 years. At maturity, the bondholder will receive interest for 20 years plus
the $1,000 face value. What is the maximum purchase price that should be paid for this
bond if the investor requires 10% rate of return.

23. Ten years from now Mr. X will start receiving a pension of $13,000 a year. The payment
will continue for sixteen years. How much is the pension worth now, if his interest rate is
10%.