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Sampurna-Dec 2023 (CA Foundation)

Time Value of Money DPP-03

1. Simple interest on ₹2,000 for 5 months at 16% p.a. is 6. A person borrows ₹ 5000 for 2 years at 4% p.a. simple
_________ . interest. He immediately lends to another person at
(1) ₹ 133.33 6
1
% p.a. for 2 years. Find his gain in the
(2) ₹ 133.26 4
(3) ₹ 134.00 transaction per year.
(1) ₹ 112.50 (2) ₹ 125
(4) ₹ 132.09
(3) ₹ 225 (4) ₹ 167.50

2. Compound interest on a certain sum for 2 years is 7. The useful life of a machine is estimated to be 10
₹41.60 and the simple interest is ₹40. Find the sum. years and cost ₹10,000. Rate of depreciation is 10%
(1) ₹ 500 (2) ₹ 400 p.a. The scrap value at the end of its life is
(3) ₹ 250 (4) ₹ 300
(1) ₹ 3,486.78 (2) ₹ 4,383
3. If the interest of a money is equal to its one by nine, (3) ₹ 3,400 (4) None of these
the rate of interest and time are equal, then the rate of
interest is 8. Mary invested ₹2,500 in a fixed deposit that offers a
1 1 nominal interest rate of 5% per annum, compounded
(1) 3 % (2) 4 %
3 2 quarterly. What is the effective rate of interest per
(3) 3 % (4) 3.5 % year?
(1) 5.00% (2) 5.16%
4. In how much time would the simple interest on a (3) 5.09% (4) 5.90%
certain sum be 0.125 times the principal at 10% per
annum? 9. The partners A and B together lent ₹3903 at 4% p.a.
1 3 interest compounded annually. After a spam of 7
(1) 1 years (2) 1 years years, A gets the same amount as B gets after 9 years.
4 4
1 3 The share of A in the sum of ₹3903 would have been
(3) 2 years (4) 2 years (1) ₹1875 (2) ₹2280
4 4
(3) ₹2028 (4) ₹2820
5. The effective rate of interest corresponding to a 10. A machine is depreciated at the rate of 20% on
nominal rate of 8% p.a convertible semi-annually is reducing balance. The original cost of the machine
________ . was ₹1,00,000 and its ultimate scrap value was
(1) 8% (2) 8.16% ₹30,000. The effective life of the machine is
(3) 8.5% (4) 8.98% (1) 4.5 years (appx.) (2) 5.4 years (appx.)
(3) 5 years (appx.) (4) None of these
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Answer Key
1. (1) 6. (1)
2. (3) 7. (1)
3. (1) 8. (3)
4. (1) 9. (3)
5. (2) 10. (2)
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Hints and Solutions

1. (1) ⇒ P × 8 = 2000
5 ⇒ P = 250
Given: P = ₹ 2,000, R = 16% and T = 5 months =
12 Therefore, the required sum is ₹ 250.
years
Hence, the correct answer is option (3) i.e. ₹ 250.
We know that,
P  R T 3. (1)
S.I.=
100 Let P be the principal, R be the rate of interest and T
be the time, then
2000  16  5
⇒ S.I = According to the question,
12  100
⇒ S.I = ₹ 133.33
1
S.I = P and R = T …. (i)
9
Hence, the correct answer is option (1) i.e. ₹133.33.
We know that,
2. (3) P  R T
S.I.=
Given: S.I.= ₹ 40, C.I.= ₹ 41.60 and time (T) = 2 years 100
Let the sum of money be P, then 1 P R R
⇒ P= (from i)
P  R T 9 100
S.I. =
100 1 R2
⇒ =
P R2 9 100
⇒ 40 =
100 100
⇒ R2 =
⇒ P × R = 2000 ….(i) 9
10
 R 
T
 ⇒ R= (since, R cannot be negative)
Now, C.I.= P 1 +  – 1 3
 100  
1
⇒R= 3 %
 R 
2
 3
 41.60 = P 1 +  – 1
 100   1
Hence, the correct answer is option (1) i.e. 3 % .
3
 R2 2R 
 41.60 = P 1 + + – 1 4. (1)
 10000 100  If P be the principal and S.I. be the simple interest at
 PR 2 PR 
2 10% p.a., then according to the question
 41.60 =  + 
10000 100  S.I. = 0.125 P
We know that,
 2000 R 2  2000 
⇒  41.60 =  + (from i) P  R T
 10000 100  S.I.=
100
R 
⇒ 41.60 =  + 40  P  10  T
5  ⇒ 0.125P =
100
R ⇒ T = 0.125 × 10
⇒ 1.60 =
5
1
⇒ R = 8% ⇒ T = 1.25 years = 1 years
4
Since, P × R = 2000
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1 P  R T
Hence, the correct answer is option (1) i.e., 1 years. ⇒ Interest earned in 2 years = =
4 100
5000  2.25  2
5. (2) = ₹225
Given : Rate of interest = 8%, 100
Number of conversion period (n) = 2 225
8 ⇒ Interest earned in 1 year = = ₹112.50
Here, i = 8% = = 0.08 p.a. 2
100
We know that, Hence, the correct answer is option (1) i.e. ₹112.50.
Effective interest rate can be calculated as:
 i
n
 7. (1)
E = 1 +  –1 100 ,
 n   Given: Time (n) = 10 years
 0.08  2
 Initial cost = ₹10,000
E =  1 +  – 1  100
 2   Depreciation rate (R) = 10% p.a.

E = (1.04 ) –1 100 We know that,

2
  n
E = 0.0816 100  R 
Scrap value = Initial cost × 1 – 
E = 8.16%  100 
Hence, the correct option is (2) i.e., 8.16%. 10
 10 
= 10000  1 – 
6. (1)  100 
Case 1: When P = ₹ 5000, T = 2 years and R = 4%
= 10000  (1 – 0.1)
10

p.a.
= 10000  ( 0.9 )
10
∴ Interest paid by the person is
P  R  T 5000  4  2
I1 = = = ₹ 400 = 10000 × 0.348678
100 100 = ₹3486.78
1 Hence, the correct answer is option (1) i.e., ₹3486.78.
Case 2: When P = ₹ 5000, T = 2 years and R = 6 %
4
25
= % 8. (3)
4
Given: Amount deposited in bank = ₹2,500
∴ Interest received by the person is Rate of interest = 5%,
P  R  T 5000  25  2 Here, i = 5% =
5
= 0.05 p.a.
I2 = = = ₹625
100 4 100 100
Number of conversion period (n) = 4
Thus, his gain in the transaction in 2 years We know that,
= ₹625 – ₹400 = ₹225 Effective interest rate can be calculated as:
225  i
n

 His gain in the transaction per year = E = 1 +  –1 100
2  n  
= ₹112.50  0.05  4

E =  1 +  – 1  100
‘OR’  4  
1
E = (1.0125) –1 100
4
Gain percent in 2 years = 6 % – 4% = 2.25%  
4
E = 0.0509 100
E = 5.09%
Hence, the correct option is (3) i.e., 5.09%.
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9. (3) 10. (2)

Let the shares of A and B be ₹x and ₹y respectively. Given: Depreciation Rate = 20%
It is given that, the amount A gets in 7 years is same
as what B gets after 9 years. Principal (Initial Value) = ₹ 1,00,000
 4 
7
 4 
9
Amount (Net Value) = ₹ 30,000
 x 1 +  = y 1 + 
 100   100  Rate of Depreciation 20
2
∴ i= = = 0.2
x  4  100 100
 = 1 + 
y  100  We know that,
x  26 
2
Net value = Initial value × (1 – i)n
 = 
y  25   30000 =100000(1 – 0.2)n

 =
x 676  (0.3) = (0.8)n
y 625 Taking log on both sides, we get
Thus, the ratio of their shares is 676 : 625.
log 0.3 = log (0.8)n
676
⇒ Share of A = x =  3903  log 0.3 = n log 0.8 [∵ log am = m log a]
676 + 625
676 log 0.3
x=  3903 n=
1301 log 0.8

 x = 676  3 = 2028 –0.523

n=
Therefore, the share of A is ₹ 2028. –0.097

Hence, the correct answer is option (3) i.e., ₹2028.  n = 5.40 years (appx.)
Hence, the correct answer is option (2) i.e., 5.4 years
(appx.).

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