Chapter 4.
Mathematics Of Finance
(i) Simple Interest (Doubles & Triples sums)
1. The annual rate of simple interest is 12.5%. In how many years does principal doubles?
(a) 11 years (b) 9 years (c) 8 years (d) 7 years
2. A sum of money, lent out at simple interest, doubles itself in 8 years. Find in how many years
will the sum become triple (three times) of itself at the same rate per cent?
(a) 16 years (b) 15 years (c) 20 years (d) None.
(ii) Compound Interest (Doubles & Triples sums)
3. A sum of money doubles itself at compound interest in 10 years. In how many years will it
become eight times
(a) 10 (b) 30 (c) 40 (d) 45
4. The time by which a sum of money would triple itself at 8% p.a. CI is
(a) 14.28 years (b) 14 years (c) 12 years (d) None of these
(iii) Difference (SI and CI)
5. The difference in simple interest of a sum invested of Rs. 1,500 for 3 years is Rs. 18. The
difference in their rates is
(a) 0.4 (b) 0.6 (c) 0.8 (d) 0.10
6. The difference between the CI and SI for 2 years is 21. If the rate of interest is 5%, the final
principal is
(a) Rs. 8,200 (b) Rs. 4,800 (c) Rs. 8,000 (d) Rs. 8,400
(iv) Effective Rate Of Interest
7. Find the effective rate of interest at 10% p.a. When interest is payable quarterly.
(a) 10.38% (b) 5% (c) 5.04% (d) 4%
8. Nominal Rate of Interest 9.9%vp.a. If interest is compounded monthly, what will be
effective rate of interest
(a) 10.35% (b) 9.36% (c) 11.36% (d) 9.9%
(v) Depreciation
9. A machine worth Rs 4,90,740 is depreciated at 15% of its opening value each year. When
would its value reduce by 90%?
(a) 11 years 6 months (b) 11 years 7 months
(c) 11 years 8 months (d) 14 years 2 months(approx.)
10. A machine worth Rs 4,90,740 is depreciated at 15% of its opening value each year. When
would its value reduce to Rs 2,00,000?
(a) 4 years 6 months (b) 4 years 7 months
(c) 4 years 5 months (d) 5 years 7 months(approx.)
(vi) Population Sums
11. The population of a town increases by 2% of the population at the beginning of the year. The
number of years by which the total increases in population would be 40% is:
(a) 7 years (b) 10 years (c) 17 years (d) 19 years
12. What will be the population after 3 years, when present population is 1,00,000 and the
population increases at 3% in year 1st year, at 4% in second year and 5% in third year.
(a) 1,12,476 (b) 1,15,476 (c) 1,20,576 (d) 1,25,600
(vii) Future Value (Regular)
13. The future value of an annuity of 1500 made annually for 5 years at an interest rate of 10%
compounded annually is [Given that (1.1)5 = 1.61051]
(a) 9517.56 (b) 9157.65 (c) 9715.56 (d) 9175.65
(viii) Sinking Fund
14. A company establishes a sinking fund to provide for the payment of ₹ 2,00,000 debt maturing
in 20 years. Contributions to the fund are to be made at the end. of every year. Find the
amount of each annual deposit if interest is 5% per annum:
(a) ₹6,142 (b) ₹6,049 (c) ₹6,052 (d) ₹6,159
15. Sinking fund factor is the reciprocal of__
(a) Present value of interest factor of a single cash flow
(b) Present value interest factor of annuity
(c) Future value of Interest factor of annuity
(d) Future value of interest factor of a single cash flow
(ix) Future Value (Due)
16. Z invests ₹ 10,000 every year starting from today for next 10 years. Suppose interest rate is
8% per annum compounded annually. Calculate future value of the annuity.
Given that (1 +0.08)¹⁰ = 2.158925 .
(a) 1,44,865.625 (b) 1,54,865.625 (c) 1,46,454.874 (d) 1,56,454.875
(x) Present Value (Regular / Ordinary Annuity)
17. Find the present value of an annuity of ₹ 1,000 payable at the end of each year for 10 years. If
rate of interest is 6% compounding per annum. (given (1.06)-10 = 0.5584):
(a) ₹7,360 (b) 8,360 (c) 12,000 (d) None of these.
18. Find the present value of an annuity which pays 200 at the end of each 3 months for 10
years assuming money to be worth 5% converted quarterly?
(a) 3473.86 (b) 3108.60 (c) 6265.38 (d) None of these
(xi) Present Value (Due)
19. Suppose your mom decides to gift you ₹ 10,000 every year starting from today for the next
sixteen years. You deposit this amount in a bank as and when you receive and get 8.5% per
annum interest rate compounded annually. What is the present value of this money:
(a) ₹ 83,042 (b) ₹90,100 (c) ₹ 93,042 (d) ₹10,100
(xii) Leasing
20. A company may obtain a machine either by leasing it for 5 years (useful life) at an annual
rent of Rs. 2,000 or by purchasing the machine for Rs. 8,100. If the company can borrow money
at 18% per annum, which alternative is preferable?
(a) Leasing (b) Purchasing (c) Can't say (d) None of these
(xiii) Capital Expenditure (Investment Decision)
21. A machine can be purchased for ₹50000. Machine will contribute ₹ 12000 per year for the
next five years. Assume borrowing cost is 10% per annum compounded annually. Determine
whether machine should be purchased or not.
(a) ₹ 35,489.48 (b) ₹ 45,489.48 (c) ₹ 54,550.48 (d) ₹ 93,125.20
(xiv) Growing Perpetuity
[Link], that discount rate is 7% per annum, how much would you pay to receive 50,
growing at 5%, annually, forever.
(a) 2500 (b) 3000 (c) 3500 (d) 4000
(xv) Compound Annual Growth Rate (CAGR)
23. The Earning Per Share (EPS) of a company for five years is given below:
Year 2019 2020 2021 2022 2023
EPS 40 25 40 60 60
Calculate the Compounded Annual Growth Rate (CAGR) of EPS.
(a) 24.47% (b) 23.47% (c) 22.47% (d) 21.47%
(xiii) Perpetuity
24. A stock pays annually an amount of 10 from 6th year onwards. What is the present value of
perpetuity, if the rate of return is 20%
(a) 20.1 (b) 19.1 (c) 21.1 (d) 22.1
25. In___ receipts/payments takes place forever
(a) Annuity (b) Perpetuity (c) Annuity regular (d) Annuity due
(xiv) Net Present Value
26. Net Present value≥ 0, then
(a) Accept the Proposal (b) Reject the proposal (c) Not Feasible (d) None of the above
27. Compute the net present value for a project with a net investment of ₹ 1,00,000 and net cash
flows for year one is ₹ 55,000; for year two is ₹ 80,000 and for year three is ₹ 15,000. Further, the
company's cost of capital is 10%?
(a) 26,340 (b) 27,340 (c) 25,340 (d) 27,000
(xv) Nominal Rate of Return
[Link] Rate of Return =
(a) Real Rate of Return Inflation (b) Real Rate of Return + Inflation
(c) Real Rate of Return / Inflation (d) Real Rate of Return x inflation
(xvi) Valuation Of Bond
[Link] investor intends purchasing a three year 1,000 par value bond having nominal interest rate
of 10%. At what price the bond may be purchased now if it matures at par and the investor
requires a rate of return of 14%?
(a) 807.125 (b) 705.12 (c) 907.125 (d) 725.125
Answer Key
01 02 03 04 05 06 07 08 09 10
(c) (c) (d) (a) (a) (d) (a) (a) (d) (d)
11 12 13 14 15 16 17 18 19 20
(c) (a) (b) (b) (c) (d) (a) (c) (c) (a)
21 22 23 24 25 26 27 28 29
(b) (a) (c) (a) (b) (a) (b) (b) (c)