Time Value of Money – Practice Numerical

1. What is the balance in your account at the end of 8 years if you deposited ₹ 10,000 today
and the account earns 5.5% interest, compounded 1) annually? 2) Quarterly? 3) Monthly?
2. If you deposit ₹ 9,000 in an account that pays 7% interest, compounded annually, how
much will you have at the end of 1) 15 years 2) 25 years 3) 50 years
3. You are valuing a project that is expected to earn a one-time cash flow of ₹ 50,00,000 in
five years. You estimate a discount rate of 9%. What is the present value of this cash
flow?
4. You have just won a ₹ 10,00,000 lotteries. This new lottery, however, will pay out the
award 60 years from today. What is the present value of your award based on a 11% p.a.
interest rate?
5. Suppose you want to have ₹ 50,00,000 saved by the time you reach age of 34 and suppose
that you are 24 years old today. If you can earn 5% on your funds, how much would you
have to invest today to reach your goal?
6. How much would I have to deposit in an account today that pays 12% interest,
compounded quarterly, so that I have a balance of ₹ 20,000 in the account at the end of 10
years?
7. Suppose I want to be able to withdraw ₹ 5,000 at the end of five years and withdraw ₹
6,000 at the end of six years, leaving a zero balance in the account after the last
withdrawal. If I can earn 5% on my balances, how much must I deposit today to satisfy
my withdrawals needs?
8. At the end of each year for 4 years, Karan deposits ₹ 500 into an investment account. If
the interest rate on the account is 10% per annum compounded yearly, determine the value
of his investment at the end of the 4 years.
9. If at the end of each month, a saver deposited ₹ 100 into a savings account that paid 6%
compounded monthly, how much would he have at the end of 10 years?
10. What is the present value of ₹ 2,000 receivable annually for 30 years with a discount rate
of 10 percent?
11. Calculate the present value of an ordinary annuity that pays ₹ 500 at the end of each year
for the next 5 years. The discount rate is 8%.

Annual Deposit in a Sinking Fund

12. You borrowed ₹ 20,00,000 from a relative for your education purpose and promised to
pay the full amount back in one payment, 10 years from now. How much should you
deposit annually in a sinking fund account wherein it earns 9% interest.
13. Your company estimates it will have to replace a piece of equipment at a cost of ₹
8,00,000 in 5 years. To do this a sinking fund is established by making equal monthly
payments into an account paying 6.6% compounded monthly. How much should each
payment be?

How much should you save monthly (FVAF)

14. A 20 year old wants to retire as a millionaire by the time she turns 70. How much will she
have to save at the end of each month if she can earn 5% compounded annually, to have ₹
10, 00,000 by the time she is 70?
15. Kosma is planning a trip to Canada to visit her friend in two years' time. She makes an
itinerary for her holiday and she expects that the trip will cost ₹ 25,000. How much must
she save at the end of every month if her savings account earns an interest rate of 10.7%
per annum compounded monthly?

Finding the Interest Rate& Growth Rate

16. Suppose you buy a GOI Treasury bond that makes no payments until the bond matures 10
years from now, at which time it will pay you ₹ 1,000. What interest rate would you earn
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 if you bought this bond for ₹ 585.43? What rate would you earn if you could buy the bond
for ₹ 550? For ₹ 600?
17. Microsoft earned $0.33 per share in 1997. Fourteen years later, in 2011, it earned $2.75.
What was the growth rate in Microsoft’s earnings per share (EPS) over the 14-year
period? If EPS in 2011 had been $2.00 rather than $2.75 what would the growth rate have
been?

How long should you wait. - Calculating "N" (Lump sum Payment)
18. Suppose you deposit ₹ 1, 00,000 in an account today that pays 6% interest, compounded
annually. How long does it take before the balance in your account is ₹ 5, 00,000?
19. How long does it take for your money to grow to ten times its original value if the interest
rate of 5% per year?
20. How long would it take ₹ 1,000 to double if it were invested in a bank that pays 6% per
year? How long would it take if the rate were 10%?

Calculating N or Term of Annuity Payment – How long should wait

21. Suppose you decide to make end-of-year deposits, but you can save only ₹ 1,200 per year.
Again assuming that you would earn 6% how long would it take you to reach ₹ 10,000
goal?
22. You want to save ₹ 8,00,000 to buy a car. You approach a bank whichgives 10.25 percent
interest per annum. You can pay ₹ 1,20,000 per year in recurring deposit. What should be
the maturity period of the deposit?

Effective Annual Rate

23. What is the effective annual interest rate of a credit card with annual rate of 36% and
interest charged monthly?
24. If interest is paid at a rate of 6.25% per year, compounded monthly, what is the effective
annual rate?
25. Find the effective rate of interest corresponding to a nominal rate of 9% per year
compounded a) semiannually b) quarterly and c) monthly

Present value of Perpetuity

26. What is the present value of a perpetuity that pays ₹ 8,000 per year, if the appropriate
interest rate is 5.5%?

* These problems are compiled from different sources to facilitate students learning process.

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