Global Elective Financial Management -Assignment 4

Given, n=10 yrs, FV=100000,

r=12%. A=?
Q5. FV=A X FVIFA(r,n)

A x FVIFA (12%, 10 years) = 1,000,000

A x 17.549 = 1,000,000

So, A = 1,000,000 / 17.549 = Rs.56,983.

Q7.Given,
FV=5000, n-=10yrs, PV=1000, r=?

FV=PV x FVIF (r,n)

1,000 x FVIF (r, 10 years) = 5,000

FVIF (r,10 years) = 5,000 / 1000 = 5

From the tables we find that

FVIF (16%, 10 years) = 4.411

FVIF (18%, 10 years) = 5.234

Using linear interpolation in the interval, we get:

(5.000 4.411) x 2%
r = 16% + = 17.4%
(5.234 4.411)

Q8 The present value of Rs.10,000 receivable after 8 years for various discount rates (r ) are:
r = 10% PV = 10,000 x PVIF(r = 10%, 8 years)
= 10,000 x 0.467 = Rs.4,670

r = 12% PV= 10,000 x PVIF (r = 12%, 8 years)

= 10,000 x 0.404 = Rs.4,040

r = 15% PV= 10,000 x PVIF (r = 15%, 8 years)

= 10,000 x 0.327 = Rs.3,270

Q10 The present value of the income stream is:

=1,000 x PVIF (12%, 1 year) +
2,500 x PVIF (12%, 2 years)+
5,000 x PVIFA (12%, 8 years) x PVIF(12%, 2 years)
 Global Elective Financial Management -Assignment 4

= 1,000 x 0.893 + 2,500 x 0.797 + 5,000 x 4.968 x 0.797

= Rs.22,683.

Q12 To earn an annual income of Rs.5,000 beginning from the end of 15 years from now,
if the deposit earns 10% per year a sum of
Rs.5,000 / 0.10 = Rs.50,000 is required at the end of 14 years.

The amount that must be deposited to get this sum is:

Rs.50,000 / FVIF (10%, 14 years) = Rs.50,000 / 3.797 = Rs.13,165

Q15. FV5 = Rs.10,000 [1 + (0.16 / 4)]5x4

= Rs.10,000 (1.04)20
= Rs.10,000 x 2.191
= Rs.21,910

Q19 The interest rate implicit in the offer of Rs.20,000 after 10 years in lieu of Rs.5,000
now is:

Rs.5,000 x FVIF (r,10 years) = Rs.20,000

Rs.20,000
FVIF (r,10 years) = = 4.000
Rs.5,000

From the tables we find that

FVIF (15%, 10 years) = 4.046

This means that the implied interest rate is nearly 15%.

I would choose Rs.20,000 after 10 years from now because I find a return of 15%
quite acceptable.

Q22 The discounted value of the annuity of Rs.2000 receivable for 30 years, evaluated as
at the end of 9th year is:
Rs.2,000 x PVIFA (10%, 30 years) = Rs.2,000 x 9.427 = Rs.18,854

The present value of Rs.18,854 is:

Rs.18,854 x PVIF (10%, 9 years)
= Rs.18,854 x 0.424
= Rs.7,994