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Problem Set 1 FPTM

The document presents a problem set focused on financial calculations involving present value, perpetuities, withdrawals from savings, and loan payments. It includes specific scenarios for calculating present values for scholarships, annual withdrawals for retirement, monthly withdrawals from investments, and remaining loan balances. The problems require understanding of interest rates and timeframes to derive solutions.

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aniketdesai2005
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5 views1 page

Problem Set 1 FPTM

The document presents a problem set focused on financial calculations involving present value, perpetuities, withdrawals from savings, and loan payments. It includes specific scenarios for calculating present values for scholarships, annual withdrawals for retirement, monthly withdrawals from investments, and remaining loan balances. The problems require understanding of interest rates and timeframes to derive solutions.

Uploaded by

aniketdesai2005
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Sriram Sastrigal, 19th March 2026

Problem Set 1 - FPTM

Suggestion: Draw a timeline to help you understand and solve the problems.

1) Calculate the present value of a perpetuity that is expected to pay ₹670 of interest every
year, assuming an annual return of 7.2 percent.

2) The dean of the Rhonda Earles Music School asks the graduating students to set up a
scholarship fund at graduation where the funds will be used to pay the tuition of one student
each year perpetually starting one year from now. Assuming the annual tuition one year from
now is $40,000 and remains constant thereafter, what is the required lumpsum amount for
the scholarship fund if the funds can be invested at 8% per year?

3) Ramesh is 65 years old. He has accumulated savings of ₹10,000,000. He estimates that he


will live another 10 years and wants to spend his entire savings by then. (If he lives longer
than that, he figures his children will be happy to take care of him). Ramesh places his
₹10,000,000 into a saving account with State Bank of Hyderabad (now State Bank of India),
earning 8 percent annually and sets it up in such a way that he will be making 10 equal
annual withdrawals (the first one occurring 1 year from now) such that his account balance
will be zero at the end of 10 years.
a) How much will he be able to withdraw each year?
b) If he wants this money to last 20 years, how much can he withdraw each year?

4) Ashley turned 50 years old today and has $5 million that she can invest in an account that
will earn 3% interest per year. She wants to withdraw a fixed amount of money each month
on her birth date, starting exactly one month from today. She expects to make her last
withdrawal on her 100th birthday. What is the amount of money she can withdraw each
month? (Hint: Remember it is monthly, so both N and r should reflect that)

5) Angelo takes out a 48-month loan for $40,000 at an interest rate of 12% per year to
purchase a car. The loan payments are made monthly. What is the amount of the loan that is
remaining after 1 year? (Hint: Remember it is monthly, so both N and r should reflect that.
Also, you must first find the monthly payment before you can answer the question).

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