Learning Management System

Subject Name Financial Management

Week 5

Topic Time Value of Money

Name : ……….…………………….……………….. Lecturer : .................................

Intake : …………………..………….…..………...…. Date : .………..…………......

1) Izzah wishes to have RM10,000 in her bank account in three years’ time. She can invest
her money in a 3- year deposit account which pays an annual compounded rate of 6%.
Calculate the amount that she must put in her account now to achieve her goal.

2) If you invest RM900 in a bank where it will earn 8% compounded annually, how much
will it be worth at the end of 7 years?

3) Alisha has just bought a new Toyota Hilux that costs RM125,000. She took a 9-year loan
from Public Bank that requires her to pay 10% of the cost, as down payment. Determine
the amount Alisha’s annual payment if the Public Bank’s interest is 3% per annum.

4) Simple interest versus compound interest

Fist City Bank pays 7 % simple interest on its savings account balances, whereas Second
City Bank pays 7 % interest compounded annually. If you made a RM 5,000 deposit in
each bank, how much more money would you earn from your Second City Bank account
at the end of 5 years?

5) Investment X offers to you RM 4,000 per year for nine years, whereas Investment Y
offers to pay you RM 6,000 per year for five years. Which of these cash flow streams has
the higher present value if the discount rate is 5 %?

Last update: 7 April 2023 Page 1 of 6

© I-Station Solutions Sdn Bhd

 Learning Management System

6) Assume today you open an account with RM 5,000 with a bank, which pays interest
annually. How much will you have in your account at the end of year ten if the interest
rate is 5%?

7) If Adam deposits RM 150 at the end of each year for the next 8 years in an account that
pays 5% interest, how much will Adam have at the end of 8 years?

8) Amy has to borrow RM 60,000 from a local finance company to start her degree in USA.
The finance companies charge her an interest rate of 4%. Find the end of year annual
payments if she wants to settle debt with finance company within 10 years after start her
education.

9) Michael will retire at age 55 and now he is 40. Michael has estimated that he needs
$15,000 a year over 10 years after his retirement for his son’s education. Find an amount
that Michael should deposit today in an account paying 8 percent interest to meet his
goal.

10) Sally is planning to purchase the terrace house using proceeds from the sale of her
apartment in 8 years from now. Her apartment is currently worth RM120,000 and its
value is growing at 6 percent a year. The terrace house is currently worth RM320,000
increasing at 7 percent per year. In addition to the value of this property, calculate how
much additional money should she deposits at the end of each year in an account paying
10 percent annual interest in order to be able to buy the terrace house after 8 years.

11) Assume that it is now January 1, 2022 and you will need RM 1,000 on January 1, 2025.
Your bank compound interest at an 8 % annual rate.

i) How much must you deposit on January 1, 2022, to have a balance RM 1,000 on
January 1, 2025.
ii) If you want to make an equal payment on each January 1 from 2022 to 2025 to
accumulate RM 1,000, how large must each of the payment be?
iii) If your father were to offer either to make payments calculated in part (ii) or to
give you lump sum of RM750 on January 1, 2022, which would you choose?

Last update: 7 April 2023 Page 2 of 6

© I-Station Solutions Sdn Bhd

 Learning Management System

12) Suzie will receive RM 6,500 per year for the next 14 years from her investment. If an 8%
interest rate is applied, what is the present value of these payments?

13) Marina wants to borrow RM 20,000 as a downpayment for her RM 200,000

apartments.The bank is going to charge her 12 % interest annually and she is required to
pay back the loan in 10 years. If interest is compounded annually, how much Marina’s
yearly investment?

14) Monisha is 40 years and she has opened an account which pays 8 percent interest and
requires RM10,000 annual deposits until her retirement at 55. Calculate the maximum
annual withdrawal that she can benefit after her retirement if she expects 15 years of
retirement life.

15) Jun has a trust fund with a balance of RM 50,000 that earns 6% annually. She wants to
make equal withdrawals at the end of the next 5 years so that the balance is zero when the
last withdrawal is made. How much should be each withdrawal?

Last update: 7 April 2023 Page 3 of 6

© I-Station Solutions Sdn Bhd

 Learning Management System

Last update: 7 April 2023 Page 4 of 6

© I-Station Solutions Sdn Bhd

 Learning Management System

Last update: 7 April 2023 Page 5 of 6

© I-Station Solutions Sdn Bhd

 Learning Management System

Last update: 7 April 2023 Page 6 of 6

© I-Station Solutions Sdn Bhd