Quantitative Techniques For Management: Aditya K Biswas

Quantitative Techniques for Management
Aditya K Biswas
Time Value of Money
• Cash Flow over Time

• Future Value is not same as the current Value
• Future Value of a single amount (present)
• Present Value of a single amount (future)
• Future Value of an Annuity
• Present Value of an Annuity
• Intra Year Compounding and discounting
Simple Interest
• A bank employee has taken a loan of Rs 5 lac

for housing. The interest rate is 10 % simple .
– How much he will have to pay after 5 Years ?
– If he pays Rs 1 lac every year when will his loan be
paid in full ?
– What will be the approx EMI if the loan period is 15
years?
• FV = PV ( 1 + r n)
Compound Interest
• For the previous example what will be the amount due
after 5 years if the interest is @ 10 % compound
• If the employee pays Rs 1 lac per year what will be his
payment schedule?
• FVn = PV (1 + r ) n
Simple Interest Compound Interest
Year O/Bal Interest C/Bal O/Bal Interest C/Bal
1 1,000 100 1,100 1,000 100 1,100
5 1,400 100 1,500 1,464 146 1,610
10 1,900 100 2,000 2,358 236 2,594
20 2,900 100 3,000 6,116 612 6,728
50 5,900 100 6,000 106,718 10,672 117,390
100 10,900 100 11,000 12,527,829 1,252,783 13,780,612
Growth Rate
• Doubling period for deposits is given by

Log (2)= n Log(1+r)
– Thumb rule is n = 0.35 + (69 / r)
• Growth rate (g=CAGR) can be calculated as
G = (1+g)n
• Calculate the CAGR when a company sales

grows 10 times in 10 years ( 0.26 % ?)
Present Value – Discounting future
• We have seen FVn = PV (1 + r ) n

• Therefore PV = FVn [1 / (1 + r ) n ]
Year 1 2 3 4 5 6 7 8
Earning -10000 -5000 0 5000 5000 5000 5000 5000
Discount %
NPV
0 10,000.00 NPV
0.01 8,750.99
0.02 7,598.23 12,000.00
0.03 6,533.69 10,000.00
0.04 5,550.10
8,000.00
0.05 4,640.87
0.06 3,799.96 6,000.00
0.07 3,021.92 4,000.00
0.08 2,301.76
2,000.00
0.09 1,634.91
0.1 1,017.23 0.00
0.11 444.92 -2,000.00 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
0.12 -85.50
-4,000.00
0.13 -577.20
0.14 -1,033.11 NPV Linear (NPV)
0.15 -1,455.89
Internal Rate of Return
• NPV is zero when discounting rate = IRR

• Marginal attractive rate of return while analyzing
portfolio of projects
• IRR for initial screening of projects
• Cash inflow and outflow both discounted at the
same rate !
• Compare NPV at a given rate against IRR for
different projects to select
Depreciation
• Measure against wear and tear of assets

• Fund created to replace after the useful life
• Books of accounts as per rules
• Benefits in TAX calculation
• Straight line method
• Written Down Value (WDV)
• Full year or part year
• Asset types – building, machinery, computers
Depreciation
• Calculate book value of a computer purchased

at Rs 100 lac after 4 years. The WDV method
was followed @ 40 % annual
– What are the tax benefits during year 1, 2, 3, 4 & 5 if
the company Tax is 30 %
• Expenditure of Rs 100 lac in the current year will
be amortized in next 5 years. What is the loss in
Tax benefits if the Tax bracket is 30 % all the
years. Depreciation is not applicable here.
Annuity
• Due in the beginning or end period (deferred)

• FVAn = A(1+r) n-1 + A(1+r) n-2 … + A
• FVAn = A * FVIFAr,n
• FVIFAr,n = [(1+r)n – 1] /r
• PVAn = A(1+r) -1 + …. A(1+r) -n

• PVAn = A[{1-(1/(1+r) n}/r]
• PVAn = A * PVIFAr,n (= A/r in case of perpetuity)
Annuity
• Deposited Rs 30,000 every year to PPF for 30

yrs interest being @11%. The Future value will
be 30,000 [(1+0.11)30 – 1] /0.11 = Rs 5,970,600
• You deposit Rs 1000 every year for 5 years and
get Rs 15,937 after 10 years. What is the
effective interest rate? (Is it 10 % ?)
• Borrowed Rs 1,080,000 for flat. Paying Rs
180,000 per year. What will be the maturity
period? (1.125n)=4; n=11.76 years)
Intra year compounding
• FVn = PV (1 + r/m ) mn
• PV = FVn [1 / (1 + r/m ) ] mn
• Effective interest rate for 12 % annual when

compounded half yearly is 12.36 % and when
compounded quarterly it becomes 12.55 %
AP & GP
• Series – Natural numbers, odd numbers, even

numbers, squares of 2, Fibonacci, Prime etc.
• Nth term by Induction : Tn = f(n)
• Series with common difference or common ratio
• Arithmatico- Geometric series –
 a, (a+d)r, (a+2d)r2 , …. (a+(n-1)d)rn-1
• S=a+(a+d)+(a+2d) … n terms .. AP series
• S= a+ar+ar2 + … n terms … GP series
Series SUM
• Sn = n(a+l)/2 = an + n(n-1)d/2 for AP

• Sn = a(rn – 1)/ (r-1) for GP
• Sn = 12 + 22 + 32 + 42 + …… + n2
= n(n+1)(2n+1)/6 [Hint consider n3 – (n-1)3 ]
• Similar for Sn = 13 + 23 + … + n3 = [n(n+1)/2] 2
• S=2+5x+8x^2+11x^3+ …. |x| <1 = (2+x)/(1-x) 2
• S= 2*5+5*8+8*11 + … + (3n-1)(3n+2) .. n terms
= n (n+1)(n+2)/6
Mean
• AM = (X1+X2+ .. Xn)/n ..
– Consider Bank interest –and also the concept of
weighted averages
• GM = (X1*X2..*Xn)1/n ..
– Interest rate over periods - multi period and intra year
– CAGR estimation
• HM = n / ( 1/X1 +1/X2 .. + 1/Xn)
– Consider 2,3,4,5,6 and see that AM >= GM >= HM
– Average speed when D distance travel with v1 and
then again D with v2. Average P/E ratios in equity.
Permutation
• n! = 1*2*3…*n .. This is factorial of n

• Multiplication principle in permutation
– One event has m possible results, another event has
n possibility. Then together there are mn possible
outcomes of the two events.
• Arrange n distinct objects .. n !
• Arrange r distinct objects out of n .. n! / (n-r)!
• Arrange n objects n1 alike, n2 alike ..n! /(n1! n2!)
Combinations
• Choose r distinct objects from n .. No repetition

– n!/ [(n-r)!r!]
• Choose r distinct objects from n .. Repetition ok
– n^r / r!
• Binomial theorem (x+y)^n = ∑n (nCk)x^k*y^n-k
Problems
• 4 books on Maths, 3 Chemistry, 2 History and 1

English. How many ways these books can be
arranged keeping same subjects together (6912)
• Tournament has 4 Russians, 3 from USA, 2 from
GB and 1 from Brazil. Result will be in the order
of placement showing country. How many
possibilities ? (12600)
• 7 men and 5 women to from a committee of 2
women and 3 men (350). What if 2 men refuse to
work together (300)
Concept of Probability
• A full deck of cards contain 4 suits X 13 each.

Find the number of ways
– a) 5 cards can be selected from 52 cards
– b) 3 cards will be Kings and 2 Queens
• P {X=n} = n/N , N-> infinity (n success in N trials)
SET theory
• SET, objects, membership (Fuzzy), Finite,

Countable, Uncountable, Real numbers
• Singleton, Empty φ, Subset, Superset
• Ordered pairs, Triples, Quadruples,
• Complementary set, Disjoint set
• Venn diagram
• Union, Intersection and Difference of sets
• Cardinality of Set, Union of two sets
• De Morgan’s Law
Problems
• In a town of 500 people, 285 read Hindu, 212

read Indian Express & 127 read ToI. Of these 20
read Hindu and ToI, 29 read Hindu * IE, 35 read
ToI & IE. 50 do not read newspaper. How many
read only one paper? [321]
More
• Relations: R is binary relation if all elements are

ordered pairs. z ∈ R where z =(x,y), xRy
– Domain R ={x| there exists y such that xRy holds}
– Range R={y| there exists x for each y that xRy holds}
• Functions: Domain F=A , Range F in B
– F:A->B, <F(a)| a ∈ A>
– Injection, Bijection, Surjection examples
X = {1,2,3} , Y= {D, B, C, A}

Quantitative Techniques For Management: Aditya K Biswas

Uploaded by

Copyright:

Available Formats

Quantitative Techniques For Management: Aditya K Biswas

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Quantitative Techniques For Management: Aditya K Biswas

Uploaded by

Copyright:

Available Formats

Quantitative Techniques for Management

• Cash Flow over Time

• A bank employee has taken a loan of Rs 5 lac

• Doubling period for deposits is given by

• Calculate the CAGR when a company sales

• We have seen FVn = PV (1 + r ) n

• NPV is zero when discounting rate = IRR

• Measure against wear and tear of assets

• Calculate book value of a computer purchased

• Due in the beginning or end period (deferred)

• PVAn = A(1+r) -1 + …. A(1+r) -n

• Deposited Rs 30,000 every year to PPF for 30

• Effective interest rate for 12 % annual when

• Series – Natural numbers, odd numbers, even

• Sn = n(a+l)/2 = an + n(n-1)d/2 for AP

• n! = 1*2*3…*n .. This is factorial of n

• Choose r distinct objects from n .. No repetition

• 4 books on Maths, 3 Chemistry, 2 History and 1

• A full deck of cards contain 4 suits X 13 each.

• SET, objects, membership (Fuzzy), Finite,

• In a town of 500 people, 285 read Hindu, 212

• Relations: R is binary relation if all elements are

You might also like

• n! = 123…*n .. This is factorial of n