Quiz 01

Financial Management
Total Marks 30
Question 01: Financial manager Mr. Amir is considering two different savings plans. The first plan would have her deposit $500
every six months, and she would receive interest at a 7 percent annual rate, compounded semiannually. Under the second plan she
would deposit $1,000 every year with a rate of interest of 7.5 percent, compounded annually. The initial deposit with Plan 1 would be
made six months from now and, with Plan 2, one year hence.
a. What is the future (terminal) value of the first plan at the end of 10 years?
b. What is the future (terminal) value of the second plan at the end of 10 years?
c. Which plan should Mr. Amir use, assuming that her only concern is with the value of her savings at the end of 10
years?
d. Would your answer change if the rate of interest on the second plan were 7 percent?

Question 02: Nasir has decided to start saving for his retirement. Beginning on his twenty-first birthday, Nasir plans to invest
$2,000 each birthday into a savings investment earning a 7 percent compound annual rate of interest. He will continue this savings
program for a total of 10 years and then stop making payments. But his savings will continue to compound at 7 percent for 35 more
years, until he retires at age 65. Asma also plans to invest $2,000 a year, on each birthday, at 7 percent, and will do so for a total of 35
years. However, she will not begin her contributions until her thirty-first birthday. How much will Nasir’s and Asma’s savings
programs be worth at the retirement age of 65? Who is better off financially at retirement, and by how much?

Question 03: Write a brief note on: Future Value of Annuity, Scope of Financial Management