Modeling class 1
- 1. Qn.1 You are thinking of investing Rs 10,000 today in a fund that promises you Rs 1,600 each year for 10 years. How much is your annual return (interest) from this investment? Qn.2 You have a choice with regard payments. Either you can pay Rs 10,000 in the future or pay an annuity of Rs 627. If the discount rate is 10%, how long will you pay the annuity? Qn.3 You will receive an annuity of Rs 10,000 in the beginning of the year. The discount rate is 9%. What is the present value of the annuity? Qn. 4 A man invested Rs.10, 000 at the beginning of 2012. It will remain invested and on 1st January each subsequent year, another Rs. 1,000 is added to it. If interest is compounded each year at the rate of 10% p.a., what sum will be available on 1st January 2022? Qn. 5 A man invested Rs 10,000 and withdraws Rs. 1,200 at the end of each year, starting at the end of the first year. How much will he have left after 10 years if interest is compounded annually @ 10% p.a.? Qn.6 Today you deposit Rs 10,000 in a 5 year fixed deposit with the State Bank of India. You shall earn compound interest rate of 6 per annum on your deposit. How much amount will you receive after 5 years?
- 2. Qn.7 You expect to receive Rs 50,000 after 5 years as a bonus from your employer. The interest rate is 6 percent per annum. How much is Rs 50,000 worth today? Qn.8 You will receive Rs 10,000 each year for 5 years. The interest rate is 9 percent per annum. How much is the worth of your receipts today? Qn. 9 You deposit Rs 10,000 each year for 10 years in a bank. The interest rate is 10 percent per annum. How much is the worth of your deposits today? Qn.10 You wish to receive Rs 10,000 at the end of 10 years from your fixed deposit in a bank. The interest rate is 10 percent per annum. How much payment should you make each year in your fixed deposit account to accumulate Rs 10,000 after 10 years? Problem-11
- 3. Assume that a deposit is to be made at year zero into an account that will earn 8% compounded annually. It is desired to withdraw Rs 5,000 three years from now and Rs 7,000 six years from now. What is the size of the year zero deposit that will produce these future payments? Problem-12 Assume that a Rs 20, 00,000 plant expansion is to be financed as follows: The firm makes a 15% down payment and borrows the remainder at 9% interest rate. The loan is to be repaid in 8 equal annual instalments beginning 4 years from now. What is the size of the required annual payments? Problem-13 A potential investor is considering the purchase of a bond that has the following characteristics: the bond pay 8% per year on its Rs 1000 principal, or face value. The bond will mature in 20 years. At maturity, the bond holder will receive interest for year 20 plus Rs. 1,000 face value. What is the maximum purchase price that should be paid for this bond if the investor requires a 10% rate of return? Problem-14 A 10 year saving annuity of Rs. 2,000 per year is beginning at the end of current year. The payment of retirement annuity is to begin 16 years from now (the first payment is to be received at the end of year 16) and will continue to provide a 20-year payment annuity. If this plan is arranged through a savings bank that pays interest @ 7% per year on the deposited funds, what is the size of the yearly retirement annuity that will result? Problem-15
- 4. A company offers to refund an amount of Rs 44,650 at the end of 5 years for a deposit of Rs 6,000 made annually. Find out the implicit rate of interest offered by the company. Problem-16 An investor deposits a sum of Rs. 1, 00,000 in a bank account on which interest is credited @ 10% p.a. How much amount can be withdrawn annually for a period of 15 years? Problem-17 What is the minimum amount which a person should be ready to accept today from a debtor who otherwise has to pay a sum of Rs. 5, 000 today Rs 6,000, Rs 8,000, Rs 9,000 and Rs 10,000 at the end of year 1,2,3,4 respectively from today. The rate of interest may be taken at 14%. Problem-18 A company is offered a contract which has the following terms: An immediate cash outlay of Rs. 15,000 followed by a cash inflow of Rs. 17,900 after 3 years. What is the company’s rate of return on this contract?