Time Value of money is important because it Considers time factor and inflation

in order to calculate the real worth of money in present and future which is very
important for us, to provide realistic financial advisory services to clients
Nominal Rate & Effective Rate Formula: (1+i/n)^n-1
What is the effective rate of interest for 10% compounded monthly, quarterly and
semi-annually?
Monthly Effective Rate = (1+R) ^ (1 / npery)-1
Real Rate of Return = (1+Interest Rate) /(1+Inflation Rate) 1

1. Mr. Gangadhar wants to buy a house after 20 Years, which is presently worth Rs.30
Lacs. He wants to know from you, how much will be the cost of house in the future, if the
property prices rise by 8% p.a. ?
Ans: 13982871

2. Bhuvan deposits Rs.200 in an account that pays 8% interest p.a. what will be the
balance in the account at the end of 10 years if no withdrawals are made?
Ans: 431

3. Raman is planning to take his entire family for a foreign trip to America after 3 years
which currently cost Rs.500000. He wants to know from his financial planner, how much it
will cost him at the end of 3 years, if the inflation rises every year by 9% p.a?
Ans: 647514

4. Rajesh gets a decent job in a real estate company in Mumbai. He is planning to buy a
posh 2 bhk flat at Navi Mumbai at the end of 10 years. The present cost of the flat is 70
lacs. He would like to know from his financial advisor about the future cost of the same
flat if the inflation rate remains at 7% p.a.
Ans: 13770059

5. Sandeep is aged 25 years and has annual expenditure of 2 lacs. If the inflation is 6 % for
1st 10 years, 7 % for next 15 years and 5 % for next 5 years, calculate his expenditure at
retirement (55 yrs) at 80 % replacement?
Ans: 1008978

6. Manohar will receive Rs.50,00,000 from a Trust fund in twenty years. His annual return
of 10% p.a. Find the approximate initial value of the fund
Ans: 743218

7. Avanish wants to accumulate Rs.150,000 in three years time for a one-month USA trip
upon his graduation. Assuming he can get 6% nominal annual return compounded semi-
annually from his investment, how much must he invest today to achieve his goal?
Ans: 125622

8. Rahul want to take personal loan of Rs.100000 at an interest rate of 14% p.a. He want
to know the EMI amount from the advisor, which will make him repay his personal loan in
24months?
Ans: 4801

9. Mr. Mahesh is working in Hotel Industry and saving Rs. 8000 per month after meeting his
survival expenses. What is the deficit saving amount if he has to accumulate Rs 25 lakhs in
15 years at an earnings rate of 7% p.a.?
Ans: Surplus of 10/- (Required 7990/-)

10. Aditi is 30 years old. She deposits 25000 at the beginning of each year in deferred
annuity scheme as a part of her retirement planning. How much will be in her account
after 25 years if her savings earn 9.5% compound annual interest?
Ans: 2497857

11. Ahmeds current annual expenditure is Rs.100000. He is 30 years old and expects to
retire at age 55. His annual expenses are estimated to rise by 6% p.a. and his life
expectancy is 75 years. His post retirement annual expenses are estimated to be 80% of his
pre-retirement expenses. What will be his expenses on the 1st year of his retirement?
Ans: 343349

12. Nirav, aged 30, wants to retire at 45. He wants to maintain his present living standard.
He spends Rs. 3,25,000 a year. He is expected to live upto 85. Inflation is to be assumed at
4% p.a. and expected returns are 7% p.a. throughout. What is the nest egg required by
Nirav at his age 45 and what amount should he save every year end to meet his plan? His
present investments are Rs 10,00,000.
Ans: 454605

13. Saloni invests Rs.100000 at an annual interest rate of 8%, how long will it take this
amount to triple in value?
Ans: 14.27 years

14. Namrata starts investing Rs.1.5 Lakhs a year and the earning rate is 12% p.a. What is
the time required to cross Rs. 60 Lakhs of capital?
Ans: 14.69 years
15. Prasad is 30 years of age and intends to retire when he has Rs.400,000. He believes
that he can save Rs.10,000 at the end of each year. Being risk averse, he places his funds
in fixed deposits earning only 5% p.a. His savings at this point is Rs.20,000. At what age
will he be able to retire?
Ans: 50 years
16. By investing Rs. 1 Lac in a security today, the maturity proceeds after10 years will be
Rs. 2.80 Lac. What return is expected from the security over the period of investment?
And: 10.84%

17. Suhas is planning to send his son to college 18 Years from now and will need
Rs.1000000 at that time in order to pay for tuition fees. If he has 200000 to invest today,
what compound average annual rate of return is required to meet the goal?
Ans: 9.35%
18. Calculate the annual interest rate required if Mr. Dinesh invested Rs.10000 today and
expects to receive Rs.18000 in 4 years?
Ans: 15.82%
19. How much you have to deposit to get an annuity of Rs.1000 every year for next 20
Years @ 12% pa?
Ans: 8365
20. Maya want to fulfil her financial responsibility of her Son pursuing engineering and
then MBA, starting next year. She want to know how much money she should keep aside in
debt oriented Monthly Income Plan, expecting to earn 10% P.a. today to ensure smooth
supply of funds to pay the fees of college as per the cash flow given below:
Yearly Fees
Engg 1st Year 50000
Engg 2nd Year 50000
Engg 3rd Year 50000
Engg 4th Year 50000
MBA 1st Year 300000
Year MBA 2nd Year 300000
Ans: 565523

21. Now suppose you are investing Rs.20000 and will get income at the end of each year
for the next 3 years. How much rate of return you are getting in the mentioned
investment?
Year 1: 6000
Year 2: 8000
Year 3: 10000
Ans: 8.896%

22. Raja deposit Rs.10000 in the 1st year and get Rs.6000 in the 3rd year, Rs.8000 in 6th
Year and Rs.1000 in 7th Year, What is the rate of return in an investment?
Ans: 11.464%
23. Now suppose the following information is given about an investment into mutual fund
on various dates and the Fund Value on 21st Dec 2008 is 650000/-.
Date of Investment Amount Invested
1-Dec-05 50000
31-Dec-05 10000
11-May-06 60000
6-Oct-07 100000
26-Oct-07 50000
11-Feb-08 75000
18 May 08 80000

Ans: 30.75%