Financial Mathematics Review

1. Find the present value of a perpetuity of Rs 5000 payable at the end of each year, if

money is worth 5% compounded annually.

2. Find the present value of a perpetuity of Rs 8000 payable at the end of each year, if

money is worth 4% compounded annually.

3. The present value of a perpetuity of Rs 500 payable at the end of every 6 months is Rs

10000. Find the rate of interest.

4. The present value of a perpetuity of Rs 200 payable at the end of every 6 months is Rs

8000. Find the rate of interest.

5. Find the present value of a sequence of payments of Rs 2000 made at the end of 6

months and continuing forever. If money is worth 5% per annum compounded semi-

annually.

6. Find the present value of a sequence of payments of Rs 4000 made at the end of 6

months and continuing forever. If money is worth 8% per annum compounded semi-

annually.

7. At what rate of interest will the present value of Rs 300 payable at the end of each

quarter be Rs 24000?

8. At what rate of interest will the present value of Rs 400 payable at the end of each

quarter be Rs 20,000?

9. What sum of money needed to invest now, as to get Rs 10,000 at the beginning of every

month for ever, if the money is worth 8% per annum compounded quarterly?
10. What sum of money needed to invest now, as to get Rs 8,000 at the beginning of every

month for ever, if the money is worth 10% per annum compounded quarterly?

11. A machine costing Rs 200,000 has effective life of 7 year and its scrap value is Rs 30,000.

What amount should the company put into a sinking fund earning 5% per annum, so

that it can replace the machine after its useful life? Assume that a new machine will cost

Rs 300,000 after 7 years. ( given 1.057 = 1.40)

12. A machine costing Rs 100,000 has effective life of 7 year and its scrap value is Rs 10,000.

What amount should the company put into a sinking fund earning 4% per annum, so

that it can replace the machine after its useful life? Assume that a new machine will cost

Rs 200,000 after 10 years. ( 1.0410=1.4)

13. A firm anticipates a capital expenditure of Rs 80,000 for a new equipment in 5 years.

How much should be deposited quarterly in sinking fund carrying 12% per annum

compounded quarterly to provide for the purchase? ( Given, 1.0320= 1.8)

14. A firm anticipates a capital expenditure of Rs 100,000 for a new equipment in 5 years.

How much should be deposited quarterly in sinking fund carrying 8% per annum

compounded quarterly to provide for the purchase?

15. A bond has a face value of Rs 10000 and a maturity period of 10 years. The nominal

interest rate is 6% per annum. What should be the price of the bond to yield an

effective interest of 8%? ( Given 1.08-10 = 0.5)

interest rate is 5% per annum. What should be the price of the bond to yield an

effective interest of 6%?

17. Face value of a bond is Rs 1000, coupon rate is 4.25% per annum, paid semi annually

and matures in 10 years. If the present value of the bond is Rs 918.23. What is the yield

to maturity?

18. Face value of a bond is Rs 10000, coupon rate is 8% per annum, paid semiannually and

matures in 10 years. If the present value of the bond is Rs8000. What is the yield to

maturity?

19. Raju buys a house for which he agrees to pay Rs 25000 at the end of each month for 8

years. If money is worth 12% converted monthly, what is the cash price of the house?

( Given 1.01-96 = 0.4)

20. John buys a house for which he agrees to pay Rs 50,000 at the end of each month for 5

years. If money is worth 6% converted monthly, what is the cash price of the house?

21. Sonam borrowed Rs 500,000 from a bank and decided to repay by monthly payments in

10 years. If bank charges interest at 7.5% per annum compounded monthly, find the

EMI. ( Given, 1.00625120 = 2.1)

22. Saijal borrowed Rs 100,000 from a bank and decided to repay by monthly payments in 3

years. If bank charges interest at 12% per annum compounded monthly, find the EMI.
23. The annual depreciation of a car is Rs 30,000. If the scrap value of the car after 15 years

is Rs 50,000, then find the original price of the car assuming the depreciation to be

linear.

24. The annual depreciation of a car is Rs 20,000. If the scrap value of the car after 10 years

is Rs 40,000, then find the original price of the car assuming the depreciation to be

linear.

25. A machine costing Rs 150,000 has a scrap value of Rs 22500. If the annual depreciation

charge is Rs 8500, then find the useful life of the machine.

26. A machine costing Rs 200,000 has a scrap value of Rs 20000. If the annual depreciation

charge is Rs 8000, then find the useful life of the machine.

27. Javed purchased a machine costing Rs 20000 and spent Rs 5000 on repairing it. The

expected lifetime is 5 years and the scrap value is Rs 4000. Find the annual depreciation.

28. Mr.Jai purchased a machine costing Rs 40000 and spent Rs 8000 on repairing it. The

expected lifetime is 8 years and the scrap value is Rs 5000. Find the annual depreciation.

29. Mr. Mohan has invested Rs 20000 for 4 years. If CAGR for the investment is 10%, find

the end value.

30. Mr. Mohan has invested Rs 40000 for 5 years. If CAGR for the investment is 8 %, find the

end value.

31. Which is a better investment?

a) 4% per year compounded quarterly

b) 3% per year compounded monthly

a) 8% per year compounded quarterly

b) 6% per year compounded monthly