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UU Time Value of Money Exercise

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19 views2 pages

UU Time Value of Money Exercise

Uploaded by

olexsufiyan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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1.

At what annual rate of simple interest will an investment of birr 1000 for 2 years grow to
the amount of birr 1100?
2. Find the future value if birr 20, 000 is borrowed at 6 percent simple interest for 3
months.
3. At 8% compounded annually, how many years will it take for birr 2,000 to grow to birr
3,000
4. If Ato Gebru Tsehayneh deposited birr 11,000 in commercial Bank of Ethiopia at i, rate
of interest compounded annually, on a 5 years time deposit, the deposit would be birr
14,720.48. Find the interest rate?
5. When Derartu was born, her parents decided to deposit birr 500 every 6 months at the
end for 15 years in an account earning 6% compounded semiannually. How much will be
in account after the last deposit is made?
6. How much should be deposited in a sinking fund at the end of each quarter for 5 years to
accumulate birr 10,000 if the fund earns 8 % compounded quarterly?
7. If birr 100 is deposited in an account at the beginning of every quarter for the next 5
years, how much will be in the account at the time of the final deposit if interest is 8%
compounded quarterly?
8. Suppose you deposit the following series of money at the end of each year for five years
in an account that pays interest rate of 14% per annum: Year 1, Br. 4000; Year 2, Br.
3000; Year 3, Br. 8000; Year 4, Br. 5000; and Year 5, Br. 6000. If interest is
compounded annually, determine the value of these money at the end of year 5.
9. A sum of money may double itself in n years, compounded at 12 percent interest
annually. Find n ?
10. Suppose you expect to receive Br. 25,000 at the end of year 4. The discount rate is 12%
per annum. What is the today’s value of this amount if interest is computed:
a. Annually b. Semiannually c. Quarterly d. Monthly
11. Suppose you expect to make the following payments at the end of each year for six years:
year 1, Br. 2000; year 2, Br. 5000; year 3, Br. 6000; year 4, Br. 3000; year 5, Br. 2000;
and year 6, Br. 4000. The discount rate is 4% per annum. Find the present value.
12. The directors of a company have voted to establish a fund that will pay a retiring
accountant, birr 1000 per month for the next 10 years , the first payment to be made a
month from now.
a. How much should be placed in the fund if it earns interest at 12% compounded
monthly?
b. How much interest will the fund earn during its existence?
13. A birr 70,000 car is to be purchased by paying birr 10,000 in cash and mortgage for 30
years at 12% compounded monthly. The payment is made at the end of each month.
a. Find the monthly payment on the mortgage
b. What will be the total amount of interest paid?
The “Rule of 72
Example1: If you invest Br. 5000 today at 10% annual interest rate, how many years does it take
to have this money doubled?

n = 72/i = 72/10 = 7.2 years

Example 2: Suppose you invest Br. 9000 today. At what annual interest rate the money will be
double in 6 years’ time?

i = 72/n = 72/6 = 12%

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