RIFT VALLEY UNIVERSITY

Financial Management I
ASSIGNMENT
1. Explain what is meant by the time value of money.
2. Briefly explain the difference between simple interest and compound interest.
3. FAR Co. deposited Br. 10,000 in a fund that will earn 8% interest compounded quarterly
for the first years, and 10% interest compounded semiannually for the next six years.
How much will FAR Co. have in the fund at the end of 10 years.
4. ADDIS Co. wants to deposit cash in a saving account at the beginning of year 1 so that it
will have Br. 50,000 at the end of year 6. How much must the company deposit at the
beginning of year 1 if the interest rate is 6% computed semiannually for the first three
years and 8% compounded quarterly for the next three years?
5. How many quarterly rents for Br. 500 are required to accumulate Br. 9,320 if the amount
on deposit earns interest at 8% compounded quarterly?
If an amount of an ordinary annuity of 16 rents of Br. 500 equals Br. 9320 immediately
after the sixteenth rent, what is the interest rate?
6. If the required amount of an ordinary annuity of 16 rents at 2% is Br. 9320, what periodic
rents are required to accumulate this amount?
7. Explain what is meant by the present value of deferred annuity and its difference from
present value of ordinary annuity and annuity due.