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Module 3-Practice Questions

The document contains a series of practice questions related to the time value of money, covering topics such as simple and compound interest, present and future value calculations, and annuities. Each question is assigned a specific mark value, indicating its complexity and importance. The questions require calculations based on various financial scenarios and interest rates.

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Zahra Kazmi
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1 views3 pages

Module 3-Practice Questions

The document contains a series of practice questions related to the time value of money, covering topics such as simple and compound interest, present and future value calculations, and annuities. Each question is assigned a specific mark value, indicating its complexity and importance. The questions require calculations based on various financial scenarios and interest rates.

Uploaded by

Zahra Kazmi
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

Module 3: Time value of money and related concepts

Practice questions (3 and 5 marks)

Question #01

Suppose you gets a loan of Rs. 500,000 at 12% simple interest rate for 10 years from a
bank. What will be total interest you will pay to bank and what will be the total payable
amount? 3 marks

Question #02

What will be the present value of Rs. 10,000 to be received after 5 years, if interest rat is
12% compounded semi-annually. 3 marks

Question #03

What will be present value of Rs. 70,000 to be received after 4years. Assume an interest
rate of 10% compounded monthly. 3 marks

Question #04

What will be the Future value of Rs. 10,000 after 5 years, if interest rat is 12%
compounded quarterly. 3 marks

Question #05 (5 marks)

Calculate and compare present values of following two investment plans and decide
which will be feasible for you and why?

Plan A: Rs. 50,000 to be received after 10 years, if interest rat is 10% compounded
semi-annually.

Plan A: Rs. 50,000 to be received after 10 years, if interest rat is 10% compounded
annually.
Question #06 (5 marks)
Calculate Present Value of the following series of cash flows if discount rate is 15%.

Year Cash flow (Rs.)

1 100,000
2 -70,000
3 250,000
4 -180,000

Question #07 (5 marks)

Option1: Deposit Rs. 500,000 today at 10% annual rate compounded semi-annually.

Option 2: Deposit Rs. 350,000 today at 12% rate compounded annually.

Required:

a) Calculate the future value of both options if investment is made for 5 years.

b) Which option will you prefer and why?

Question #08

What will be future value of an ordinary annuity if annual payment is Rs. 5000 for 10 years at
an annual interest rate of 8%. 3 marks

Question #09

What will be future value of annuity due if annual payment is Rs. 8000 for 5 years at an
annual interest rate of 10%. 3 marks

Question #10 (3 marks)

Calculate the present value of an ordinary annuity if:


Annual payment: Rs. 3000
Number of years: 10
Interest rate: 15% per annum
Question #11(3 marks)

Calculate the present value of an annuity due if:


Annual payment: Rs. 3500
Number of years: 5
Interest rate: 10% per annum

Question #12 (3 marks)


What will be present value of a perpetuity of Rs. 2000 per year at 12% annual interest rate?

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