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1. The document contains 9 questions related to time value of money concepts such as compound interest, present value, equivalent annual worth, and rate of return. 2. The questions involve calculating future and present values using formulas for compound interest, annuities, sinking funds, and escalating cash flows. 3. One question asks to determine the annual interest rate difference that would account for a $110,325 difference in total interest paid on a $100,000 mortgage over 30 years.

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82 views1 page

2 C

1. The document contains 9 questions related to time value of money concepts such as compound interest, present value, equivalent annual worth, and rate of return. 2. The questions involve calculating future and present values using formulas for compound interest, annuities, sinking funds, and escalating cash flows. 3. One question asks to determine the annual interest rate difference that would account for a $110,325 difference in total interest paid on a $100,000 mortgage over 30 years.

Uploaded by

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

1. Derive the equation, F= 1− ( )


∗ (1 + 𝑖) for geometric gradient
( )
series.
2. Define time value of money, nominal interest rate and effective interest rate.
Calculate the future sum at the end of 5th year when monthly deposit is Rs.
6000 for 3 years that earns 7% interest per year.
3. You deposit Rs. 1000 in your bank account. If the bank pays 4% simple
interest, how much will you accumulate in your account after 10 years? What
if the bank pays compound interest? How much of your earnings will be
interest on interest?
4. Define sinking fund. Determine the sinking fund amount for a hydropower
company to buy a turbine of Rs. 40,00,000 after 25 years with interest rate of
12%.
5. Find the numerical value of the following factors using the formula.
1. ( AP ,13%,15)
2. ( PG ,27%,10)
6. Determine the difference in the present worth values of the following two
commodity contracts at an interest rate of 8% per year. Contract 1 has a cost
of $10,000 in year 1; costs will escalate at a rate of 4% per year for 10 years.
Contract 2 has the same cost in year 1, but costs will escalate at 6% per year
for 11 years.
7. A person’s credit score is important in determining the interest rate on a
home mortgage. According to Consumer Credit Counseling Service, a
homeowner with a $100,000 mortgage and a 520 credit score will pay
$110,325 more in interest charges over the life of a 30-year loan than a
homeowner with the same mortgage and a credit score of 720. How much
higher would the interest rate per year have to be in order to account for this
much difference in interest charges, if the $100,000 loan is repaid in a single
lump-sum payment at the end of 30 years?
8. During a period when the real estate market in Phoenix, Arizona, was
undergoing a signifi cant downturn, CSM Consulting Engineers made an
agreement with a distressed seller to purchase an offi ce building under the
following terms: total price of $1.2 million with a down payment of $200,000
now and no payments for 4 years, after which the remaining balance of $1
million would be paid. CSM was able to make this deal because of poor
market conditions at the time of purchase, and, at the same time, planning to
sell the building in 4 years (when market conditions would probably be better)
and move to a larger offi ce building in Scottsdale, Arizona. If CSM was able to
sell the building in exactly 4 years for $1.9 million, what rate of return per year
did the company make on the investment?
9. The equivalent annual worth of an increasing arithmetic gradient is $135,300.
If the cash fl ow in year 1 is $35,000 and the gradient amount is $19,000, what
is the value of n at an interest rate of 10% per year?

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