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This document contains several questions related to time value of money concepts such as present value, future value, compound interest, annuities, and bonds. It asks the reader to calculate things like the present value of a pension, the future value of a lump sum investment, the interest rate on a loan, and the value of bonds. It also contains questions about dividend growth models, return on equity, and the price an investor should sell shares to earn a target rate of return. The questions cover a wide range of time value of money and valuation calculations.

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nitesh jain
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83 views2 pages

Questions

This document contains several questions related to time value of money concepts such as present value, future value, compound interest, annuities, and bonds. It asks the reader to calculate things like the present value of a pension, the future value of a lump sum investment, the interest rate on a loan, and the value of bonds. It also contains questions about dividend growth models, return on equity, and the price an investor should sell shares to earn a target rate of return. The questions cover a wide range of time value of money and valuation calculations.

Uploaded by

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

Q 1 Exactly ten years from now Sri Chand will start receiving a pension of Rs 3000/- a
year .The payment will continue for sixteen years . How much is the pension worth now,
if rate of interest is 10%.

Q 2 Your father has promised to give you Rs 100000/- in cash on your 25th birthday
.Today is your 16th birthday.
(a) If he decides to make annual payments into fund after one year , how much will each
have to be if the fund pays 8%.
(b)If he decides to invest a lump sum in the account after one year & let it compound
annually , how much will be the lumpsum
(c)If the payments are made in the beginning of the year , how much will be the value of
annuity.

Q 3 How long will it take to double your money if it grows at 12% annually.

Q 4 Mohan bought a share 15 years ago for Rs 10.It is now selling for Rs 27.60.What is
the compound growth rate in the price of the share.

Q 5 Ramesh is borrowing Rs 50000/- to buy a low income group house. If he pays equql
installments for 25 years & 4% interest on outstanding balance . what is the amount of
installment ? what shall be the amount if half yearly payments are required to be made?

Q 6 A company has issued debentures of Rs 50 lakh to be repaid after 7 years.How much


should the company invest in a sinking fund earning 12% in order to be able to repay
debentures.

Q 7 A firm purchases machinery for Rs800000/- by making a down payment of Rs


150000/- and remainder in equal instalments of Rs 150000/- for six years.What is the rate
of interest to the firm?

Q 8 AB Ltd is creating a sinking fund to redeem its preference capital of Rs 5 lakh


issued on 6th April 1994 & maturing on 5 April 2005.The first annual payment he will
make on 6th April 1994. The company will make equal annual payments and expects that
the fund will earn 12% per year, how much will be the amount of sinking fund payments.

Q 9 Ram has borrowed a 3 year loan of Rs10000 at 9% from the employer to buy a
second hand motorcycle. The loan has to be paid in three equal end of year instalments
,find out the amount of installments & prepare the loan amortization schedule.
Q 1 The government is proposing to sell a 5 year bond of Rs 1000/- at 8%interest per
annum. The bond amount will be amortized equally over its life. If an investor has a
minimum required rate of return of 7%,what is the bonds present value for him ?

Q 2 A 10 year bond of Rs 1000 has an annual rate of interest of 12%.The interest is paid
half yearly. If the required rate of return is 16%,what is the value of bond.

Q 3 A bond is available for Rs1400/-. It offers including one immediate payment , 10


annual payments of Rs 210. compute the rate of return.

Q 4 The managing director of a company decides that his company will not pay any
dividend till he survives. His current life expectancy is 20 years .After that time it is
expected that the company could pay dividends of Rs 30 per share indefinitely .At
present the firm could afford to pay Rs 5 per share forever.The required rate of this
companys shareholders is 10%. What is the current value of the share ? What is the cost
to each shareholder of the managing directors policy?

Q 5 A company expects to pay a dividend of Rs 7/-,next year that is expected to grow at


6%.It retains 30% of earnings.Assume a capitalization rate of 10%. You are required to
a) Calculate the expected earnings per share
b) Return on equity
c) The value of growth opportunities.

Q 6 The closing price of the shares of ABC Ltd on December 31 previous year was Rs
25.It paid the year end dividend as follows
YEAR DIVIDEND

1 2
2 2
3 2.2
4 2.5
5 2.5

At what price should an investor sell his shares at the end of year 5 to earn a compound
rate of return of 15% on the initial investment (of Rs 25). Ignore commission & taxes.

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