TIME VALUE OF MONEY

1. A company's bonds have par value of Rs. 1,000, mature in 7 years, and
carry a coupon rate of 12% payable semi-annually. !f the appropriate
discount rate is 16 percent, what price should the bond command in the
market place?
2. Determine the future values utilizing a time preference rate of 9 per cent.
a. The future value of Rs. 15,000 invested, now for a period of
four years.
b. 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?
c. The future value at the end of eight years of an annual
deposit of Rs. 18,000 each year.
3. Xu Lin recently obtained a 10 year, Rs. 50,000 loan. The loan carries an 8%
compound annual interest rate and calls for equated annual installment
payments at the end of each of the next 10 years.
a. How much is the equated annual installment Potentially large
anticipated benefits
b. t, amount?
c. How much total interest will be paid over the life of the loan?
4. Mr. Vittal wishes to purchase an annuity contract that will pay him Rs. 7000
a year for the rest of his life. The Life Insurance Company figures that his
life expectancy is 20.years, based on actuary tables. The company inputs a
compound annual interest rate of 6 percent in its annuity contracts.
a. How much will Vittal have to pay for the annuity?
b. How much would he have to pay if the interest rate were 8
percent?
5. Using annual, semi-annual and quarterly compounding periods for each of
the following
i. compute the future value if Rs.1,000 is initially deposited and
ii.
Determine the effective rate of interest.
(a)
At 10 percent annual interest for 5 years
(b)
At 8 percent annual interest for 6 years
(c)
At 6 percent annual interest for 10 years
6. You are 20 year old today and you are planning for savings to settle at the
time of your retirement. You expect to retire at 50 years and will live for 25
years after retirement. You have to buy a house at the time of retirement
costing Rs. 50 lacks (cost at the time of retirement). You also expect annual
living expenses of Rs. 6 lacks / year for your expected life after retirement.
How much you need to have saved by your retirement date. Assume rate of
interest at 8%. Also calculate how much you need to save each year till
retirement to reach at the amount you have to save as per your retirement
plan.

7. A finance Co. makes an offer to deposit a sum of Rs.1100 & receive a return
of Rs.80 p.a. perpetually. Should this offer be accepted if the rate of interest
is 5%?