Tutorial 1

Please submit the answers before deadline. You are supposed write in your own language as far as possible with
required formulas and cash flow diagram for each question.

1. What is difference between nominal and effective interest rate? You deposit Rs. 1,000 in your bank account. If the
bank pays 4% simple interest, how much will accumulate in your account after 10 years? What if the bank pays
compound interest? How much of your earnings will be interest on interest? [ Ans=Rs80.25

2. Mr. Anup wants to have Rs 10,00,000 for the studies of his son after the period of 15 years. How much rupees does
he has to deposit each year for 10 continuous years in a saving account that earns 8% annually. (Ans:
46,980.31)

3. Hulas has a major manufacturing plant in Birgunj. The President want to know equivalent future value of Rs.
1000000 capital investment each year for 8 years starting 1 year from now with rate 14% per year. ( Ans.
13232760.16)

4. If you deposit Rs. 1,00,000 now in a bank A/C which gives 6% interest per year. How many times would you draw
Rs. 5,000 per month with that money? Ans: N=21.09 months

5. Mr. X receives a loan of Rs. 1,20,000 from a bank at an interest rate of 12% per year. He wishes to repay the loan
in monthly installment with Rs. 3,000 per month. How many installments are necessary to complete his payment?
Ans: N=50.6months
6. A girl wants to deposit Rs. 15,000 in every year into a bank at interest rate of 12% per year compounded
semiannually. What will be the maturity amount after 5 years?

7. How many deposits of Rs.25000 each should Dr. Thakur make each month so that the final accumulated amount
will be Rs. 1000000 if the bank interest rate is 12% per year? (Ans; 34 deposits)

8. What is the effective interest rate of the nominal interest rate10% per year if the compounding is a) yearly (ii)
quarterly (iii) monthly iv) daily e) continuously
(Ans: Yearly = 10.0000%, Quarterly = 10.3813%, Monthly = 10.4713%, Daily (365 days) = 10.5156%,
Continuously = 10.5171%.)

9. If you make equal monthly deposits of Rs. 2000 into the bank for five years, saving account pays interest
rate of 12% compounded quarterly. Find the balance at the end of 8 years.

10. You make the monthly deposits of Rs.5000 each into a bank account that pays an interest rate of 8%
compounded weekly for 5 years. After 5 years interest rate changes to 6% per year. How much money
will you have accumulated in the bank at the end of 8 years.

11. How much money should you deposit now in a saving account earning 10% interest rate compounded annually so
that you make 8 end of year withdrawal of Rs. 2000 each? P=10669.85

12. Evaluate FW at the end of 10 years with 8% interest rate compounded continuously of a cash flow of Rs. 500 at the
beginning of each year for first 5 years. Ans=4,762

13. How many deposits of Rs. 25000each should Thakur make each month so that the final accumulated amount will
be Rs. 1000000 if the bank interest rate is 12% per year? (around 34months)
14. Mr. Adhikari purchased a motorbike which cost Rs. 2,00,000. He pays 30% as down payment. Remaining cost will
be paid on the installment basis & wishes to pay Rs. 10,000 per month for 20 months. What annual interest rate is
the paying? Ans: iyearly=54%

15. If you deposited Rs. 4,000 at the beginning of first 6 years, what will be accumulated amount at the end
of 10th year when rate of interest is 10% that compounds quarterly. Make also cash flow diagram.

16. A person borrows Rs. 5,000 for 3 years to be repaid in equal monthly installments. The interest rate is
10% per year compounded continuously. How much money must be paid at the end of each months?

17. Calculate the future worth of the following cash flows deposited at 8% compounded continuously for five years (i)
Rs. 50000 at the beginning of each year (ii) Rs, 50000 at the end of each year.
(Ans: 319850, Rs.295258)
18. Ram and Shyam have just opened two saving accounts. The accounts earn 10% annual interest. Ram wants
to deposit Rs.1000 in his account at the end of the 1 st year and increase this amount by 300 for each of the
following 5 years. Shyam wants to deposit an equal amount each year for next 6 years. What would be
the size of the Shyam’s annual deposit so that two accounts have equal balance at the end of 6 years?
19. A software company decided to invest Rs. 50,00,000 for the development of infrastructure of new project. If
rerunning cost of project is Rs. 2,00,000 per month that generates inflow of Rs. 5,50,000 per month. How much
profit will company gain in six years if yearly maintenance cost is Rs. 5,00,000. Suppose that maintenance cost will
be spending at the starting of year and effective interest rate is 10% per year. Ans=2,07,64,466

20. Deposit Rs. 15,000 now in a bank which gives 10% interest per year. Draw Rs. 12,000 at the end of 2 nd year. Draw
Rs. X at the end of 5 year. Balance at the end of 10 year was 10,000. Find value of X. Ans= Rs 1,976.44

10000
12000 X
0 1 2 3 4 5 6 7 8 9 10

15000

21. Suppose you deposit Rs. 10000 now and the deposit amount is decreasing per year by Rs. 500 for ten years. What
will be the amount at the end of 10 years if bank interest rate is 12% yearly? (Ans: F= 166318)

22. Suppose that one has cash flows as follows. Find the present equivalent at i=15%

End of year Net Cash flow

1 -8000
2 -7000
3 -6000
4 -5000

23. . How much rupees should you deposit now so that you will be able to draw Rs. 5000 at the end of each month
which increases by 2 % per month for 10 years. Bank interest rate is 12% per year. (Ans: 1170.563)
24. . Find the value of A if i=15% (Ans: 6698)

25. An investment of Rs 100000 is made in a limited partnership in a natural gas drilling project. The First
year of the investment produced net revenue of Rs. [Link] a 20-year period the net revenue received
from the investment decreased by 10% each year. Based on an interest rate of 12% what is the present
worth for the investment?

26. Find PW, AW & FW from the following cash flows when MARR 12% per year.

End of year Net cash flows (Rs.)

0 -5,000
1 -500
2 0
3 1,200
4 1,200
5 1,200
6 1,320

27. Anew machine costing of Rs. 2,50,000 is estimated to have life of 10 years and expected annual revenue is Rs.
50,000 with annual cost of Rs. 12,500. Determine the investment decision based on PW formulation to this machine,
if salvage value is Rs. 70,000 and MARR is 10% per year. Make also cash. Ans=7,407.5

28. From the following cash flow information, calculate PW, AW and FW by assuming rate of interest is 7% per year
that compounds semiannually. Ans=1,12,509.7

EOY 0 1 2 3 4 5
Cash flow -3,00,000 80,000 90,000 90,000 90,000 1,20,000

29. A construction company needs equipment which costs Rs. 10,00,000 & has a salvage value of Rs. 1,00,000 at the
end of 10 years. The equipment suppliers are also willing to provide the equipment on hire for Rs. 1,25,000 per year
for 10 years. What will you do? Purchase or Hire MARR = 12% Ans Rs7,06,275
 30. It is estimated that the maintenance cost on a new car will be Rs4000 the first year. Each subsequent year, this cost
is expected to increase by Rs.1000. How much would you need to set aside when you bought a new car at
Rs.10,00,000 to pay all future maintenance costs if you planned to keep the car for 7 years. Assume interest is 5%
per annum.

31. Net revenue of an older manufacturing plant will be Rs.2 million at the end of this year. The net revenue will
decrease 15% per year for next 5 years. If the firm’s interest rate is 10%, calculate the present worth of the revenue
stream.

32. Net revenue at an older manufacturing plant will be Rs. 1 million at the end of this year. The net revenue will
increase 15% per year for next 4 years. If the firms interest rate is 15%. Calculate a) present worth b ) future worth
of the revenue stream.

33. A loan company has been advertising on television a plan that allows people to borrow $1000 and make a payment
of $10.87 per month This payment is only for interest. What is the nominal interest rate that they are charging. Also
find effective interest rate.

34. How long will it take for $10000 invested at 5% per year compounded continuously to triple in value?

35. If you want a 12% rate of return, continuously compounded on a project that will yield Rs. 6000 at the end of 2.5
years, how much must you be willing to invest now?

36. An automobile may be purchased with Rs.300000 down payment now and 60 monthly payments of Rs [Link] the
interest rate is 12% compounded monthly, what is the price of the automobile?

37. What is the present worth of cash flows that begins end of first year at Rs. 10000 and decreases by 10% every two
years for next 9 cash flows. Interest rate is 6%.

38. After passing BE Computer, a student had bought a car on 2010 AD. which cost Rs 25 lakhs with 5 lakhs down
payment. Remaining amount will have to pe paid yearly 10installments from beginning of 2011 AD. The bank
interest rate is 10%. How much money did he pay for each installment? If After paying 6 installments, he wants to
clear all remaining installments at once in 7th installment, how much payment shall he make?
(Ans: Normal 7th installment = Rs. 3,25,491, 7th installment to clear the remaining loan: Rs. 10,31,690)

Note: Please do not copy the answers from your friends or any source. If found copied, the tutorial marks will not be
provided. It is for your individual practice. Keep practicing!!Further, also start preparing the theory questions with proper
examples (assignments on the slides) which will be seen later. Thank you!!