Questions for Group Discussion

1. Determine the future values utilizing a time preference rate of 9 per cent:
(i) The future value of Rs 15,000 invested now for a period of four years.
(ii) The future value at the end of five years of an investment of Rs 6,000 now and of an
investment of Rs 6,000 one year from now.
(iii) The future value at the end of eight years of an annual deposit of Rs 18,000 each year.
(iv) The future value at the end of eight years of annual deposit of Rs 18,000 at the beginning
of each year.
(v) The future values at the end of eight years of a deposit of Rs 18,000 at the end of the first
four years and withdrawal of Rs 12,000 per year at the end of year five through seven.

2. Compute the present value of each of the following cash flows using a discount rate of 13 per
cent:
(i) Rs 2,000 cash outflow immediately.
(ii) Rs 3,000 cash inflow four years from now.
(iii) Rs 4,000 cash inflow at the end of each of the next five years.
(iv) Rs 4,000 cash inflow at the beginning of each of the next five years.

3. Determine the present value of the cash inflows of Rs 3,000 at the end of each year for next 4
years and Rs 7,000 and Rs 1,000 respectively at the end of years 5 and 6. The appropriate
discount rate is 14 per cent.

4. Assume that you need to have Rs.50,000 at the end of 10 years. To accumulate this sum, you
have decided to save a certain amount at the end of each of the next 10 years and deposit it in
the bank. The bank pays 8 percent interest compounded annually for long-term deposits.
i. How much will you have to save each year?
ii. If you deposit a certain amount at the beginning of each of the next 10 years, how
much will you have to save each year?

5. Mr. Lin recently obtained a 10-year, Rs.50,000 loan. The loan carries an 8 percent
compound annual interest rate and calls for annual installment payments of Rs.7,451.47 at
the end of each of the next 10 years.
i. How much of the first year’s payment is principal?
ii. How much total interest will be paid over the life of the loan? (You do not need to
construct a loan amortization table to answer this question.)

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 6. Assume that you are given a choice between incurring an immediate outlay of Rs.10,000
and having to pay Rs.2,310 a year for 5 years (first payment due one year from now); the
discount rate is 11 per cent.
What would be your choice? Will your answer change if Rs. 2,310 is paid in the beginning of
each year for 5 years?

7. Suppose that you take out a Rs.2,000,000, 5-year mortgage loan to buy a house. The interest
rate on the loan is 15%, and payments on the loan are made annually at the end of each year.
i. What is your annual payment on the loan?
ii. Construct a mortgage amortization table, showing the interest payment, the amortization
of the loan, and the loan balance for each year

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