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A financial services company offers investment vehicles to its clients. Investment A pays an amount of Rs. 8,000 in 2 years, and has an annual interest of 6% compounded semi-annually. Investment B pays an amount of Rs. 12,000 in 4 years, and has an annual interest of 8% compounded quarterly. Investment C pays an amount of Rs. 15,000 in 8 years, and has an annual interest of 10% compounded quarterly. Investment D pays an amount of Rs. 20,000 in 12 years, and has an annual interest of 6% compounded monthly. Investment E pays an amount of Rs. 25,000 in 15 years, and has an annual interest of 4% compounded semi-annually.
1. What is the present value of Investment A?
a. Rs. 7,102
b. Rs. 7,108
c. Rs. 7,120
d. Rs. 7,180
Ans - b
The PVIF is 0.8885
The present value is Rs. 8,000 * 0.8885 = Rs. 7,108
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2. What is the present value of Investment B?
a. Rs. 8,741
b. Rs. 8,417
c. Rs. 8,768
d. Rs. 8,820
Ans - a
The PVIF is 0.7284
The present value is Rs. 12,000 * 0.7284 = Rs. 8,741
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3. What is the present value of Investment C?
a. Rs. 6,872
b. Rs. 6,906
c. Rs. 6,508
d. Rs. 6,807
Ans - d
The PVIF is 0.4538
The present value is Rs. 15,000 * 0.4538 = Rs. 6,807
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4. What is the present value of Investment D?
a. Rs. 9,838
b. Rs. 9,787
c. Rs. 9,752
d. Rs. 9,275
Ans - c
The PVIF is 0.4876
The present value is Rs. 20,000 * 0.4876 = Rs. 9,752
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5. What is the present value of Investment E?
a. Rs. 13,802
b. Rs. 13,812
c. Rs. 13,761
d. Rs. 13,882
Ans - a
The PVIF is 0.5521
The present value is Rs. 25,000 * 0.5521 = Rs. 13,802
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What will a deposit of Rs. 4,500 at 10% compounded semiannually be worth if left in the bank for six years?
a. Rs. 8,020.22
b. Rs. 7,959.55
c. Rs. 8,081.55
d. Rs. 8,181.55.
Ans - c
Solution:
FV = PV [FVIFi,n]
FV = Rs. 4,500 [FVIF5%,12]
= Rs. 4,500 (1.7959)
= Rs. 8,081.55
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You are considering leasing a car. You notice an ad that says you can lease the car you want for Rs. 477.00 per month. The lease term is 60 months with the first payment due at inception of the lease. You must also make an additional down payment of Rs. 2,370. The ad also says that the residual value of the vehicle is Rs. 20,430. After much research, you have concluded that you could buy the car for a total "driveout" price of Rs. 33,800. What is the quoted annual interest rate you will pay with the lease?
a. 13.47 percent
b. 13.97 percent
c. 14.47 percent
d. 14.97 percent
Ans - a
Solution:
n=60 (total number of payments)
PV = -31430 (price of Rs. 33,800 minus Rs. 2,370 down payment)
FV = 20,430 (residual value)
PMT = 477
Make sure you are in begin mode.
solve for i (answer on calculator = 1.122834%)
Since the number of periods was entered as months, the answer for i is the monthly rate.
The annual rate equals the monthly rate times 12.
Annual rate = (1.122834%)(12) = 13.47%
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