TIME VALUE OF MONEY

Problems for exercise

Future Value: 1. What would you end up with if you left Tk. 1000 in the account for 5 years at 8% interest rate? Ans: 1469.33 2. You get Tk 50,000 from your uncle. You would like to deposit this money in Dhaka Bank. At present bank offers 8% interest for time deposit. How much shall it grow after 10 years? How much it will be if compounded. i) Semiannually ii) Quarterly iii) Monthly Ans: i) 107946.24 ii) 110401.98 iii) 110982.01 3. Your father receive Tk 3,00,000 from selling a property. Now he would like to Deposit the money in a fixed deposit account. If the interest rate for such deposit is 12%, then how much he will get after 5 years. How much after 10 years if interest is compounded semiannually? Ans: 528,702.50, 962.140.64 Present Value: 1. Assume that you need Tk 2000 after 2 years. Your bank compounds interest at an eight percent annual rate. How much you need to deposit now to have a balance of Tk 2000. Ans: 1714.68 2. Your Father committed you to present a computer after 5 years. Then the time the computer will cost Tk. 45,000. If bank interest rate is 12% then how much money your father need to deposit now for fulfilling his commitment? Ans: 25,534.20 3. You have a machine in your business. The expected life of this machine is 8 years. After that it should be replaced by another one. To replace it you will need approximately Tk 72000. How much should be deposited now to accumulate the required funds if bank interest rate is 10% per annum compounded monthly. Ans: 459.10 Annuity FUTURE value of an annuity (Ordinary): 1. You want to go abroad for higher study. For this you are depositing Tk 12000 at the end of each year. If the interest rate is 9% then how much you will get after 8 years. Ans: 132341.68 2. Mr. X interested to deposit Tk 500 at the end of each month in a DPS account in Mercantile Bank. The interest rate for DPS of the bank is 8%. If he deposited for 3 years then how much he will receive after that period. Ans:20,267.78 Future value of an annuity (Due): 1. Rahman a student of Stamford University would like to buy a motorbike. For fulfilling his dream, he deposits 4000 at the beginning of each year out of his daily receive from his parents. If the interest rate is 10% then how much will it be after 10 years. 2. If someone make a deposit of Tk 6000 at the beginning of each year at the interest rate of 9%. After 5 years what will be the accumulated amount he will receive. Ans: 39.140

 Present value of an annuity (Ordinary): 1. From an insurance company you would like to receive Tk 5000 at the end of each year for 4 years. How much money you have to deposit now at 12% interest rate for receiving such amount? Ans: 05,186.75 2. Mr. Hakim retires from his job and receives a lump sum amount from his employer. He wants to receive Tk. 100,000 at the end of each year for the next 10 years. If the interest rate is 5% then how much he has to deposit for receiving such series of cash inflows. Ans: 671,008.14 Present value of an annuity (Due): 1. What is the present value of Tk. 4000 receiving at the beginning of each year for 7 years at a 10% interest rate? Ans: 31,421.04 2. Mr. Basher receives some money from his friend. He committed to repay the money at the beginning of each year for 10 years by Tk. 6000. If he makes a payment in this way total principle and interest will be repaid. If the interest rate is 6% then how much money he takes from his friend. Ans: 46,810.15 A Company has decided to set up a sinking fund to replace an asset after 5 years. The value of the fund after 5 years must be Tk. 1,00,000 and the fund is expected to earn interest at the rate of 7% per annum. i) What must be the annual payment into the fund if the payment make at the end of each year? After 10 years your business need Tk. 10,00,000. You maintain a sinking fund and deposit some money at the beginning of each year for 10 years. If the interest rate is 5% then how much must the payment be to attain your requirements? Ans: 75,718.64 Mr. Mannan borrow Tk. 5,00,000 from a bank for purchasing a shop. If he pays annual equal installments for 10 years at 8% interest rate on outstanding balance. Then what is the installment amount if he make installment at the end of each year? Ans: 79514.74 Perpetuities: 1. If you receive Tk. 500 for each year until you died / for ever. If the opportunity cost/discount rate is 6% then what is the value of this perpetual amount? Ans:3333.33 2. What is the value of a bond paying 1000 per year for infinite time and the interest rate is 7%.