Introduction to Financial Planning

Lecture # 1: -
Present Value, Future Value, Interest Calculations (Basic Calculations),
Rule of 72 ,69 & 114: -

1) If you invest Rs. 10,000 today at a compound interest of 10% p.a., what will be its future value after
10 years?

a) Rs. 25, 937

b) Rs. 23, 947
c) Rs. 20, 636
d) Rs. 22, 937

Ans: -

Method # 1: - Formula Method

FV = PV (1+r)n = 10000 (1+0.10)10 = 25, 937.4246.

Method # 2: - CMPD mode

o Set = Begin (Unless specified in the question or if it is a problem related to “loan” we shall stick with
Begin
mode)

o n = 10 x 1 = 10 (‘n’ here signifies, “total payment periods” i.e. No. of years x no of annual payments (n x
P/Y).

o I% = 10% (ROI p.a.) (The ROI should always be taken in the p.a. basis irrespectively the annual
compounding)

o PV = - 10,000 (Cash outflow, so denoted with a “-ve” sign)

o PMT = 0

o FV = ? (Rs. 25, 937. 4246) (Cash Inflow, so automatically is denoted with a “+ve” sign)

o P/Y = 1 (‘P/Y’ here signifies, “no. of annual payments”. P/Y is used in case of “PMT”. If payments
(PMT) are
made monthly, quarterly, semiannually and annually; P/Y would be 12, 4, 2, 1 respectively).

o C/Y = 1 (‘C/Y’ here signified, “no. of annual compounding”. If the compounding takes place monthly,
quarterly, semiannually and annually; C/Y would be 12, 4, 2, respectively).
2) What is the Present Value of Rs. 10,000 receivable after 6 years if the rate of discount is 10%.

a) - 5,465
b) - 5, 675
c) - 5, 645
d) - 6,000

Ans: -
Method # 1: - Formula Method

PV = FV = 10000 = 5,644.739301.
(1+r)n (1.10)6
Method # 2: - CMPD mode

o Set = Begin (unless otherwise specified or in case of loan calculations)

o n = 6 x 1 = 6 (i.e. n x P/Y = 6 x 1)
o I% = 10
o PV = ? (- 5,644.739301) (Cash Outflow, so automatically denoted as “-ve”)
o PMT = 0
o FV = 10000 (Cash Inflow, therefore “+ve”)
o P/Y = 1
o C/Y = 1

3) M/S D Ltd has placed a deposit of Rs. 5,000 with a company at 15% p.a. interest being compounded
semi annually. In the three years their investment will grow to?

a) Rs. 7,250
b) Rs. 7,344
c) Rs. 7,500
d) Rs. 7,604
e) Rs. 7,716

Ans: -
CMPD Mode

o Set = Begin
o n = 3 x 1 = 3 (i.e. n x P/Y)
o I% = 15 (always to be taken as p.a.)
o PV = - 5000 (Cash outflow, so denoted with a “-ve” sign)
o PMT = 0
o FV= ? (7,716.507628) (Cash inflow, so denoted with a “+ve” sign)
o P/Y = 1
o C/Y = 2 (semi annual compounding, therefore C/Y is denoted as 2)

4) Someone promises to give you Rs. 5,000 after 10 years in exchange for Rs. 1,000 today.
What is the interest rate offered to you?

a) 14.76%
b) 17.46%
c) 16.47%
d) none of the above
Ans: -
CMPD mode

o Set = Begin
o n = 10 x 1 = 10 (i.e. n x P/Y)
o I% = ? (17.46%)
o PV = -1000
o PMT = 0
o FV = 5000
o P/Y = 1
o C/Y = 1

5) The IDBI deep discount bond offers an investor Rs. 50,000 after 20 years, for an initial investment of
Rs.9,500. The interest rate implied in the offer is?

a) 8.65%
b) 6.85%
c) 9.12%
d) 8.95%

Ans: -

CMPD mode

o Set = Begin
o N = 20 x 1 (i.e. n x P/Y)
o I% = ? (8.65%)
o PV = - 9500 (Cash Outflow, so indicated with a “-ve” sign)
o PMT = 0
o FV = 50000 (Cash Inflow, so indicated with a “+ve” sign)
o P/Y = 1
o C/Y = 1

6) If Rs. 1,00,000 becomes Rs. 1,50,000 in 2.5 years when compounding is done semi annually, Find the
annualized of return.

a) 16.89%
b) 16.50%
c) 15.95%
d) 16%
Ans: -

CMPD mode

o Set = Begin
o n = 2.5 x 1 = 2.5 (i.e. n x P/Y)
o I% = ? (16.89%)
o PV = -100000 (Cash Outflow, so indicated with a “-ve” sign)
o PMT = 0
o FV = 150000 (Cash Inflow, so indicated with a “+ve” sign)
o P/Y = 1
o C/Y = 2 (Compounding is done semi annually)
7) A client seeking liquidity sets aside Rs. 22,000 in a bank account today. The account pays
8% p.a. interest rate compounded monthly. Because the client is concerned about the fact that
the deposit insurance covers the account for only upto Rs. 1,00,000. Calculate how many years
it’ll take to reach that amount.

a) 17.56 years
b) 18.98 years
c) 18.01 years
d) 19.56 years

Ans

CMPD mode
o Set = Begin
o n = ? (18.98961545)
o I% = 8
o PV = - 22,000 (Cash Outflow, so indicated with a “-ve” sign)
o PMT = 0
o FV = 1,00,000 (Cash Inflow, so indicated with a “+ve” sign)
o P/Y = 1
o C/Y = 12 (Compounding is done monthly)

8) You’ve Rs.2,800 to invest & wants to have Rs.4,900 at the end of 9 years, what compounded interest
rate you must get on your money to achieve your target (assume semi annual compounding)

a) 8.20%
b) 7.00%
c) 6.31%
d) 5.40%

Ans: -

CMPD mode

o Set = Begin
o n = 9 x 1 = 9 (i.e. n x P/Y)
o I% = ? (6.315620073)
o PV = -2,800 (Cash Outflow, so indicated with a “-ve” sign)
o PMT = 0
o FV = 4,900 (Cash Inflow, so indicated with a “+ve” sign)
o P/Y = 1
o C/Y = 2 (Compounding is done semi annually)

9) What is the stated annual percentage rate for an annuity due with 48 monthly payments of
Rs. 500 & with a future value of Rs. 28,976.06?

a) 0.75%
b) 9.38%
c) 10%
d) 11%
Ans: -
CMPD mode

o Set = Begin
o n = 4 x 12 = 48 (i.e. n x P/Y)
o I% = ? (9.38069)
o PV = 0
o PMT = - 500 (Cash Outflow, so indicated with a “-ve” sign)
o FV = 28,976.06 (Cash Inflow, so indicated with a “+ve” sign)
o P/Y = 12 (monthly payments)
o C/Y = 1

10) You buy a growth oriented non dividend paying share for Rs. 200 & 4 years later you sell it for Rs.
350. The compounded annual growth rate (CAGR) is?

a) 10.30%
b) 18.80%
c) 75%
d) 15%

Ans: -
CMPD mode

o Set = Begin
o n = 4 x 1 (i.e. n x P/Y)
o I% = ? (15%)
o PV = - 200 (Cash Outflow, therefore ‘’-ve”)
o FV = 350 (Cash Inflow, therefore “+ve”)
o P/Y = 1
o C/Y = 1

11) You invested Rs. 20,000 in a 12 month deposit. At maturity, it is worth Rs. 22,500. What is
the monthly compounded annual rate of return?

a) 9.15%
b) 12.50%
c) 7.62%
d) 11.83%

Ans: -
CMPD mode

o Set = Begin
o n = 1* x 1 (i.e. n x P/Y) (*12 month = 1 year)
o I% = ? (11.836%)
o PV = - 20,000 (Cash Outflow, therefore ‘’-ve”)
o PMT = 0
o FV = 22,500 (Cash Inflow, therefore “+ve”)
o P/Y = 1
o C/Y = 12 (compounded monthly)
12) What annual rate of interest has the bank been charging from you if you borrow Rs. 67,650
& repay Rs. 71,200 at the end of 2 quarters, if the interest is compounded quarterly?

a) 2.59%
b) 10.36%
c) 14%
d) 13.50%

Ans: -
CMPD mode

o Set = Begin
o n = 0.5* x 1 (i.e. n x P/Y) (*2 quarters = 6 months, therefore ‘n’ = 6/12 = 0.5 years)
o I% = ? (10.36100776%)
o PV = 67,650 (Cash Inflow, therefore ‘’+ve”)
o PMT = 0
o FV = - 71,200 (Cash Outflow, therefore “- ve”)
o P/Y = 1
o C/Y = 4 (compounded quarterly)

13) What annual rate of interest is the bank charging, if you borrow Rs. 76,500 & repay Rs.
80,000 at the end of 3 quarters , the interest being compounded quarterly?

a) 1.5%
b) 6%
c) 4%
d) 3.5%

Ans: -
CMPD mode

o Set = End (specifically mentioned that the payments are made at the ‘end’ of the quarters)
o n = 0.75* x 1 (i.e. n x P/Y) (*3 quarters = 9 months, therefore ‘n’ = 9/12 = 0.75 years)
o I% = ? (6.0094%)
o PV = 76,500 (Cash Inflow, therefore ‘’+ve”)
o PMT = 0
o FV = - 80,000 (Cash Outflow, therefore “- ve”)
o P/Y = 1
o C/Y = 4 (compounded quarterly)

14) An investment promises to pay Rs. 15,000 after 3 years & 6 months, if an initial investment
of Rs. 4,000 is made. Calculate the annual rate of interest offered by the investment?

a) 46%
b) 3.8%
c) 20%
d) 11%
Ans: -
CMPD mode

o Set = Begin
o n = 3.5* x 1 (i.e. n x P/Y) (*3 years & 6 months; therefore 6 months = 6 / 12 = 0.5 years; therefore total
years = 3.5 years)
o I% = ? (10.36100776%)
o PV = - 4,000 (Cash Outflow, therefore ‘’- ve”)
o PMT = 0
o FV = 15,000 (Cash Inflow, therefore “+ve”)
o P/Y = 1
o C/Y = 1 (compounded quarterly)

15) A deposit of Rs.100 grows to Rs.115 in two months period. Calculate the monthly
compounded interest rate.

a) 7.238%
b) 3.619%
c) 43.42%
d) 86.8566%

Ans: -
CMPD mode

o Set = Begin
o n = 0.166666667* x 1 (i.e. n x P/Y) (n = 2/12 = 0.1666667 years)
o I% = ? (86.85663537)
o PV = - 100 (Cash Outflow, therefore ‘’- ve”)
o PMT = 0
o FV = 115 (Cash Inflow, therefore “+ve”)
o P/Y = 1
o C/Y = 12 (compounded monthly)

I% = 86.85663537 is in p.a. basis (i.e. APR) and not in monthly basis as required under the
Question .Therefore monthly compounded interest rate = (86.85663537 / 12) = 7.238%

Rule of 72 ,69 & 114: -

16) If the interest rate is 12%, what are the doubling periods as the Rule of 72 & Rule of 69
respectively.

a) 6 years; 6.10 years

b) 6 years; 5 years
c) 6.10 years; 6 years
d) none of the above

Ans: -
o Rule 72: - n = (72 / i) = (72 / 12) = 6 years
o Rule 69: - n = 0.35 + (69 / i) = 0.35 + (69 / 12) = 6.10 years
17) Which of the following rule helps in calculating how long it takes to triple your money?

a) Rule of 72
b) Rule of 69
c) Rule of 114
d) Rule of 144

Explanation: - Although Rule 114 isn’t part of the CFPCM certification syllabus, the same is
Implemented here for knowledge basis.

18) According to Rule 114, if you invest your money in a scheme yielding an annual return of
14%, the investment will triple in

a) 8.14 years
b) 9.40 years
c) 5.27 years
d) 5.14 years

Ans: -
Rule 114: - n = (114 / i) = (114 / 14 ) = 8.142857143 years

Explanation: - Although Rule 114 isn’t part of the CFPCM certification syllabus, the same is
implemented here for knowledge basis.

19) How long it’ll take an investment of Rs. 1,00,000 to triple in value. The current interest rate
is 7% compounded annually.

a) 10.24 years
b) 12.24 years
c) 11.25 years
d) 16.28 years

Ans: -
Rule 114: - n = (114 / i ) = (114 / 7 ) = 16.28571429 years

Explanation: - Although Rule 114 isn’t part of the CFPCM certification syllabus, the same is
implemented here for knowledge basis.
 Lecture # 2:-

PMT, PV & FV (Advance Calculations), Perpetuity: -

20) How much should a company invest at the beginning of each year @ 14%, so that it can
redeem debenture of Rs. 10,00,000 at the end of year 10.

a) Rs. 45,363
b) Rs. 48,195
c) Rs. 51,714
d) Rs. 65, 236

Ans: -
CMPD mode

o Set = Begin
o n = 10 x 1 (i.e. n x P/Y)
o I% = 14
o PV = 0
o PMT = ? (- 45,362.7551) (Cash outflow, therefore automatically indicated as “-ve”)
o FV = 10,00,000 (Cash Inflow, therefore “+ve”)
o P/Y = 1 (investment done once a year)
o C/Y = 1

21) Suppose you expect to receive Rs. 15,000 annually for 5 years, each receipt occurring at
the end of the year. What is the Present Value of this stream of benefits if the discount rate is
10%?

a) Rs. 56,861.80
b) Rs. 57,463. 75
c) Rs. 75,000
d) Rs. 55,000

Ans: -
CMPD mode

o Set = End (specifically mentioned in the question)

o n = 5 x 1 (i.e. n x P/Y)
o I% = 10
o PV = ? (- 56,861.80154)
o PMT = 15,000 (Cash inflow, therefore “+ ve”)
o FV = 0
o P/Y = 1 (investment done once a year)
o C/Y = 1

22) Your father deposits Rs. 5,00,000 on retirement in a bank which pays interest @ 10% p.a.
being compounded semi annually. How much can be withdrawn every year for a period of 10
years?

a) 80,242.58
b) 80,534.20
c) 74, 601.95
d) 40,121.29
Ans: -CMPD mode

o Set = Begin
o n = 10 x 1 = 10
o I% = 10
o PV = - 500000 (Cash Outflow, so designated with a “-ve” sign)
o PMT = ? (74,601.95181) (Cash Inflows, automatically designated with a “+ve” sign)
o FV = 0
o P/Y = 1 (withdrawal done once a year; therefore P/Y =1)
o C/Y = 2 (compounded done semi annually)

23) Ms. Khan purchased a bond of Rs. 1,00,000 at a price of Rs. 1,15,000 payable at a par on
maturity. The bond will pay Rs. 1,000 at the end of every month for a period 10 years. What’ll be
the annualized rate of return?

a) 1%
b) 0.08%
c) 0.08046%
d) 10.09%

Ans: - CMPD mode

o Set = End (Payments are being made at the ‘end’ of every month)
o n = 10 x 12 = 120 (i.e. n x P/Y)
o I% = ? (10.09446079)
o PV = - 1,15,000 (Cash Outflow, so “- ve”)
o PMT = 1,000 (Cash Inflow, so “+ve”)
o FV = 1,00,000
o P/Y = 12 (Payments are made on monthly basis, so there will be 12 payments in a year)
o C/Y = 1

24) Mukesh wishes to purchase a house with the help of a loan. He approaches HDFC to them
that his paying capacity is Rs. 3,540 per month. ROI to be charged by the company is 8.5% p.a.
Mukesh wishes to pay back the amount in 21 years. Compute the amount of loan which can be
availed by him.

a) Rs. 4,50,000
b) Rs. 4,42,356
c) Rs. 4,15,376
d) Rs. 4,15,672

Ans: -
CMPD mode

o Set = End (“loan” numerical. Calculation to be made in “end” mode)

o n = 21 x 12 = 252 (i.e. n x P/Y)
o I% = 8.5
o PV = ? (4,15,376) (Receipt of loan, cash inflow, therefore “+ve”)
o PMT = - 3540 (“EMI” payments, cash outflow, therefore “-ve”)
o FV = 0
o P/Y = 12 (payments made monthly, therefore total payments in a year are 12)
o C/Y = 12 (although silent, compounding is done monthly in lines with stated loan procedures)
25) An amount becomes Rs. 5,62,778 in 5 years, when for the first 4 years ROI is 6% p.a.
compounded quarterly & in the 5th year compounding is done annually. Find the amount
invested

a) Rs. 4,16,000
b) Rs. 4,18,383
c) Rs. 4,20,000
d) Rs. 4,15,000

Ans: - CMPD mode

For the 5th year, For the first 4 year,

annual compounding Quarterly compounding
Set = Begin Set = Begin
n = 1 x 1 (i.e. n x P/Y) n = 4 x 1 (i.e. n x P/Y)
I% = 6 I% = 6
PV = ? (- 530922.6415) PV = ? (- 418383.521)
PMT = 0 PMT= 0
FV = 562778 (Cash Inflow, therefore “+ve”) FV = 530922.6415
P/Y = 1 P/Y = 1
C/Y = 1 (compounding is done annually) C/Y = 4 (compounding is done quarterly)

26) Sudha has invested Rs. 12,000 for 8 years at ROI of 6%. What amount she’ll get after 8
years if the amount is compounded annually for the first 5 years & semi annually for the last 3
years?

a) Rs. 19,803.43
b) Rs. 19,174
c) Rs. 18,976.24
d) Rs. 19,203

Ans: - CMPD mode

For the first 5 years, For the last 3 years,

annual compounding semi annual compounding
Set = Begin Set = Begin
n = 5 x 1 (i.e. n x P/Y) n = 3 x 1 = 3 (i.e. n x P/Y)
I% = 6 I% = 6
PV = - 12000 PV = 16058.70693
PMT = 0 PMT = 0
FV = ? (16058.70693) FV = ? (19174.93589)
P/Y = 1 P/Y = 1
C/Y = 1 (compounded annually) C/Y = 2 (compounded semi annually)
27) In the above question, if in the first 5 years, compounding is done annually. In the next 2
years, compounding is done quarterly & in the last 1 year compounding is done monthly.
Calculate the amount of money accumulated by Sudha in 8 years.

a) 16,125.30
b) 11,625.30
c) 12,650
d) 19,206

Ans: -
CMPD mode

First 5 years Next 2 years Last 1 year

(compounding done
(compounding done annually) quarterly) (compounding done monthly)
Set = Begin Set = Begin Set = Begin
n = 5 x 1 (i.e. n x P/Y) n = 2 x 1 (i.e. n x P/Y) n = 1 x 1 (i.e. n x P/Y)
I% = 6 I% = 6 I% = 6
PV = - 12000 PV = - 16058.70 PV = - 18090.0065
PMT= 0 PMT = 0 PMT = 0
FV = ? (16,058.70) FV = ? (18,090.0065) FV = ? (19,205.75852)
P/Y = 1 P/Y = 1 P/Y = 1
C/Y = 1 C/Y = 4 C/Y = 12

28) You wish to save for your son’s education the present cost of which is Rs. 3,20,000 & is
expected to increase by 6% every year. If your son is 12 years old & will require money in 8
years time, what is the amount of investment to be made if it likely to earn 12% rate of return.

a) 2,05,993
b) 2,05,670
c) 2,10,000
d) 2,09,553

Ans: - CMPD mode

Rise in cost due to inflation @ 6% Investment to be done @ 12%

Set = Begin Set = Begin
n = 8 x 1 (i.e. n x P/Y) n = 8 x 1 (i.e. n x P/Y)
I% = 6 I% = 12
PV = - 320,000 PV = ? (- 2,05,993.1217)
PMT = 0 PMT =0
FV = ? (510031.3838) FV = 510031.3838
P/Y = 1 P/Y = 1
C/Y = 1 C/Y = 1

29) Mohan invested a sum for 5 years @ 8% p.a. Where it was compounded annually for the
first 4 years & quarterly for last 1 year. He received Rs. 85,000 on maturity. What was the
amount he had initially invested?
a) Rs. 4,16,000
b) Rs. 78,527
c) Rs. 57,720
d) Rs. 57, 203

Ans: -
CMPD mode

Last one year (quarterly compounding) First 4 years (annual compounding)

Set = Begin Set = Begin
n = 1 x 1 (i.e. n x P/Y) n = 4 x 1 (i.e. n x P/Y)
I% = 8 I% = 8
PV = ? (-78,526.86121) PV = ? (57,719.58724)
PMT = 0 PMT = 0
FV = 85,000 FV = 78526.86121
P/Y = 1 P/Y = 1
C/Y = 4 C/Y = 1

30) Shashi wants to purchase a car which is costing Rs. 8,50,000. Reviewing her budget she
determines she can afford to pay Rs. 15,000 per month for three years towards the car. The
going rate of interest is 1% per month for 3 years. How much can she afford to borrow? Indicate
the nearest amount.

a) Rs. 4,50,000
b) Rs. 5,50,000
c) Rs. 8,80,000
d) Rs. 6,00,000

Ans: -
CMPD mode

o Set = End (Loan numerical)

o n = 3 x 12 = 36 (i.e. n x P/Y)
o I% = 12 (ROI should always be on p.a. basis)
o PV = ? (4,51,612.5756) (Cash Inflow, therefore “+ve”)
o PMT = - 15,000 (Cash Outflow, therefore “-ve”)
o FV = 0
o P/Y = 12 (He is paying Rs. 15,000 per month, therefore there will be 12 payments in a year)
o C/Y = 12 (In case of loans, the compounding is always done on monthly basis)

31) Mr. A owes Rs. 50,000 to you & the interest is 12% p.a. compounded monthly. What would
you prefer?

a) Take Rs. 60,000 after 1 year

b) Take Rs. 25,000 now & Rs. 32,000 at the end of the year
c) Take Rs. 40,000 now & Rs. 15,200 at the end of the year
d) Take Rs. 50,000 now
Ans: -
Method # 1:

Option a Option b Option c Option d

Set = Begin Rs. 25,000 is already Rs. 40,000 is already Rs. 50,000 is already
n = 1 x 1 (i.e. n x P/Y) in P.V. terms. in P.V. terms. in the P.V. terms.
I% = 12 Therefore: - Therefore:- So, Total PV = 50,000
PV = ? (53246.95352) Set = Begin Set = Begin
PMT = 0 n = 1 x 1 (i.e. n x P/Y) n = 1 x 1 (i.e. n x P/Y)
FV = 60,000 I% = 12 I% = 12
P/Y = 1 PV = ? (28,398.37521) PV = ? (13,489.22822)
C/Y = 12 (monthly
compounding) PMT = 0 PMT = 0
So, Total PV FV = 32,000 FV = 15,200
= 53,246 P/Y = 1 P/Y = 1
C/Y = 12 (monthly C/Y = 12 (monthly
compounding) compounding)
So, Total PV = 25,000+ So, Total PV = 40,000 +
28,398 13,489
= 53,398 = 53,489

Method # 2: - Compute the Future Value of all four options: -

Option a Option b Option c Option d

Rs. 60,000 is Set = Begin Set = Begin Set = Begin
already in F.V. n = 1 x 1 (i.e. n x P/Y) n = 1 x 1 (i.e. n x P/Y) n = 1 x 1 (i.e. n x P/Y)
terms. I% = 12 I% = 12 I% = 12
So Total FV PV = 25,000 PV = 40,000 PV = 50,000
= 60,000 PMT = 0 PMT = 0 PMT = 0
FV = ? (28,170.62575) FV = ? (45,073.00121) FV = ? (56341.25151)
P/Y = 1 P/Y = 1 P/Y = 1
C/Y = 12 (monthly C/Y = 12 (monthly C/Y = 12 (monthly
compounding) compounding) compounding)
Rs. 32,000 is already Rs. 15,200 is already in
in F.V. terms. the F.V terms. So, Total FV
So,Total FV So,Total FV = 56,341
= 28,170 + 32,000 = 45,073 + 15,200
= 60,170 = 60,273
Method # 3: - Compute the extra receipts: -

Option a Option b Option c Option d

Set = Begin Balance Payable Balance Payable Balance
n = 1 x 1 (i.e. n x P/Y) = 50,000 - 25,000 = 50,000 - 40,000 Payable
I% = 12 = 25,000 = 10,000
PV = 50,000 Set = Begin Set = Begin = 50,000 -50,000
PMT = 0 n = 1 x 1 (i.e. n x P/Y) n = 1 x 1 (i.e. n x P/Y) NIL
FV = ? (56,341.25151) I% = 12 I% = 12
P/Y = 1 PV = 25,000 PV = 10,000
C/Y = 12 (monthly
compounding) PMT = 0 PMT = 0
FV = ? (28,170.62575) FV = ? (11,268.2503)
Excess Receipt P/Y = 1 P/Y = 1
C/Y = 12 (monthly C/Y = 12 (monthly
= 60,000 - 56,341 compounding) compounding)
= 3,659
Excess Receipt Excess Receipt
= 32,000 - 28,170 = 15,200 - 11,268
= 3,830 = 3,932

32) Brijesh age 48, plans to retire at 65 & wants to be debt free at the time of retirement. The
balance sheet mortgage is Rs. 1,14,042 at the end of the 10th year for a 30 year loan. The
monthly payment was Rs. 953.89. What was the original balance of the loan if the interest rate
was 8%?

a) Rs.1,40,000
b) Rs. 1,30,000
c) Rs. 1,20,000
d) Rs. 1,25,000
Ans: - CMPD mode

Method # 1 Method # 2
Set = End (loan numerical) Set = End (loan numerical)
n = 10 x 12 = 120 (i.e. n x P/Y) n = 30 x 12 = 360 (i.e. n x P/Y)
I% = 8 I% = 8
PV = ? (1,29,999.6229) PV = ? (1,29,999.4622)
PMT = - 953.89 (Cash Outflow, so “-ve”) PMT = - 953.89 (Cash Outflow, so “-ve”)
FV = - 1,14,042 (It’s a liability & has to be paid so
will be a cash outflow & therefore “-ve”) FV = 0
P/Y = 12 (Rs. 953.89 is paid monthly, therefore, the P/Y = 12 (Rs. 953.89 is paid monthly,
total payments in a year are 12) therefore, the total payments in a year are 12)
the total payments in a year are 12)
C/Y = 12 (monthly compounding) C/Y = 12 (monthly compounding
33) Gary received an inheritance of Rs. 2,00,000. He wants to withdraw equal periodic
payments at the beginning of each month for 5 years, starting after 5 years. He expects to earn
12% annual interest, compounded monthly on his investments. How much can he receive each
month?
a) Rs. 8,082.28
b) Rs. 4,448.89
c) Rs. 4,404.84
d) Rs. 8002.26
Ans: -
CMPD mode

FV of investments for 5 years Withdrawals each month

Set = Begin Set = Begin
n = 5 x 1= 5 (i.e. n x P/Y) n = 5 x 12 = 60 (i.e. n x P/Y)
I% = 12 I% = 12
PV = - 2,00,000 (Cash Outflow, so “ - ve”) PV = - 3,63,339.3397
PMT = 0 PMT = ? (8,002.26) (Cash Inflow, so “+ve”)
FV = ? (3,63,339.3397) FV = 0
P/Y = 1 P/Y = 12 (withdrawal to be made on monthly basis)
C/Y = 12 (monthly compounding) C/Y = 12 (monthly compounding)

34) Avinash pays his mortgage of Rs. 12,00,000 for 15 years at an interest rate of 7%. Avinash
makes his payment on monthly basis. What is the total amount of interest Avinash will pay over
the term of the mortgage?
a) Rs. 6,47,000
b) Rs. 7,76,300
c) Rs. 7,30,200
d) Rs. 7,41,480

Ans:-Method # 1: - CMPD mode

Calculation of Total Interest paid over the term of the

Calculations of EMI paid mortgage
Set = End (loan numerical) Total amount paid over the life of the loan
n = 15 x 12 = 180 (i.e. n x P/Y) = (Rs. 10,786 x 12 months) x 15 years
I% = 7 = Rs. 19,41,480
PV = 12,00,000 (Cash Inflow, so “+ve”) Total Interest paid over the life of the loan

PMT = ? (- 10,785.93925) (Cash Outflow, so “-ve”) = Rs. 19,41,480 - Rs. 12,00,000 (Amount of loan)
= Rs. 7,41,480
FV = 0
P/Y = 12 (payments made on monthly
basis)
C/Y = 12 (monthly compounding)
Method # 2: - AMRT Function

o Set = End
o PM1 = 1 (where “PM1” stands for “No. of Payments
o PM2 = 180 (where “PM2” stands for ”No. of Payments
o n = 180
o I% = 7
o PV = 12,00,000
o PMT = - 10,785.93925
o FV = 0
o P/Y = 12
o C/Y = 12
Solve = - 7,41,469.065

Q35) In the above question, Avinash wants to know after paying 5 years of EMI what is the
status of this Loan taken with regards to following?

I. Total interest paid in last 5 years

II. Total Principal amount paid in last 5 years
III. Balance outstanding after years

Ans:-

I. Total interest paid in last 5 years

Method - AMRT Function

o Set = End
o PM1 = 1 (where “PM1” stands for “No. of Payments
o PM2 = 60 (5*12) (where “PM2” stands for ”No. of Payments paid”)
o n = 180
o I% = 7
o PV = 12,00,000
o PMT = - 10,785.93925
o FV = 0
o P/Y = 12
o C/Y = 12
o
Solve = -3,76,109 (The Answer indicate interest amount paid so far on the loan taken)

II. Total Principal amount in last 5 years

Method - AMRT Function

o Set = End
o PM1 = 1 (where “PM1” stands for “No. of Payments
o PM2 = 60 (5*12) (where “PM2” stands for”No. of Payments paid”)
o n = 180
o I% = 7
o PV = 12,00,000
o PMT = - 10,785.93925
o FV = 0
o P/Y = 12
o C/Y = 12
Solve = -2,71,046.37 (The Answer indicate amount paid towards the principal portion of loan taken)

III. Balance outstanding after 5 years

Method - AMRT Function

o Set = End
o PM1 = 1 (where “PM1” stands for “No. of Payments
o PM2 = 60 (5*12) (where “PM2” stands for”No. of Payments paid”)
o n = 180
o I% = 7
o PV = 12,00,000
o PMT = - 10,785.93925
o FV = 0
o P/Y = 12
o C/Y = 12

Bal = Solve = -9,28,953.62 (The Answer indicate amount outstanding towards the principal
portion of loan taken)

36) Girish received an inheritance of Rs. 2,00,000. He wants to withdraw equal periodic
payments at the beginning of each month for 10 years, starting after earn 12% annual interest,
compounded monthly on his investments. How much can he receive each month?

a) Rs. 9,470
b) Rs. 9, 376
c) Rs. 8,912
d) Rs. 8,824

Ans: -

CMPD mode

Future Value of the inheritance after 10 years Periodic withdrawal each month
Set = Begin Set = Begin
n = 10 x 1 = 10 (i.e. n x P/Y) n = 10 x 12 = 120 (i.e. n x P/Y)
I% = 12 I% = 12
PV = 2,00,000 (Cash Inflow,so “+ve”) PV = - 6,60,077.3789
PMT = ? (9,376.428472)
PMT = 0 FV = 0
P/Y = 12 (withdrawal made on each month, so there
FV = ? (- 6,60,077.3789) would be 12 withdrawals in a year)
P/Y = 1 C/Y = 12 (Compounded monthly)
C/Y = 12 (Compounded monthly)
37) The cash purchase price of an item is Rs. 2,00,000. The selling company offers installment
plan, which allows an immediate payment of Rs.10,000 and a series of 5 half yearly payments
thereafter. The first installment is payable at the beginning after one & a half year. If the company
wants a ROI of 10% p.a. compounded half yearly, what will be the half yearly
instalment?

a) Rs. 43,885
b) Rs. 48,383
c) Rs. 50, 802
d) Rs. 29,412

Ans: -
CMPD mode

Balance amount payable Future Value of the Balance amount Half yearly instalment

Balance amount payable Set = Begin Set = Begin

= Cash Purchase Price - n = 1.5 x 1 = 1.5 (i.e. n x P/Y) n = 2.5* x 2 = 5 (i.e. n x P/Y)
Down Payment I% = 10 I% = 10
= 2,00,000 - 10,000 PV = - 1,90,000 PV = 2,19,948.75
= 1,90,000 PMT = 0 PMT = ? (44,383.44584)
FV = ? (2,19,948.75) FV = 0
P/Y = 1 P/Y = 2 (payments made half yearly)
C/Y = 2 (Compounded half yearly) C/Y = 2 (Compounded half yearly)

*The alphabet “n” in the CMPD mode signifies, “Total payment periods” which is
calculated as = no. of years x no. of annual payments. In this case the the value (i.e. 5 half
yearly payments) is given straight away. Since there are only two half yearly payments
that can happen in a year, we work backward to calculate the value of “n” as 2.5 years
(i.e. 5/2).

38) Sundar invests a sum of Rs. 72,000 at 5% p.a. After 7 years, the ROI was changed to 5%
compounded half yearly. After a period of 3 years, the ROI was again changed to 6%
compounded quarterly. What will Sundar get at the end of 15 years of commencement?

a) Rs. 1,40,000
b) Rs. 1,48,251
c) Rs. 1,58,242
d) Rs. 1,55,000

Ans: -
CMPD mode
 ROI 5% ROI 5% ROI 6%
compounded annually compounded half yearly compounded quarterly
for 7 years for a next 3 years for balance 5 years
Set = Begin Set = Begin Set = Begin
n = 7 x 1 = 7 (i.e. n x P/Y) n = 3 x 1 = 3 (i.e. n x P/Y) n = 5 x 1 = 5 (i.e. n x P/Y)
I% = 5 I% = 5 I% = 6
PV = - 72,000 PV = - 1,01,311.2304 PV = - 1,17,489.9671
PMT = 0 PMT = 0 PMT = 0
FV = ? (1,01,311.2304) FV = ? (1,17,489.9671) FV = ? (1,58,241.9504)
P/Y = 1 P/Y = 1 P/Y = 1
C/Y = 1 (Compounded yearly) C/Y = 2 (Compounded halfyearly) C/Y = 4 (Compounded quarterly)

39) A brokerage account has been set up with an initial investment of Rs. 50,000. This portion will earn
6% annually. Quarterly investment amounts of Rs.70,000 for 60 periods follow the initial investment,
which will earn 7%. The same are done at the end of each quarter. At the end of the 60 periods, Rs.
1,00,000 will be withdrawn from the total available balance. The balance remaining after the withdrawal
is invested in the market for 3 years. At the end of three additional years, the account is closed & the
final balance of Rs.8,45,678 is withdrawn. What annual return was earned for the last 3 years of
investment?

a) 4.47%
b) 3.46%
c) 5.68%
d) Answer cannot be calculated from the information given

Ans: -CMPD mode

Initial investment of Quarterly investment of Total Balance & withdrawal of Annual return for last
Rs. 50,000 Rs.7,000 Rs.1,00,000 three years

Set = Begin Set = End Total Balance Set = Begin

= 1,19,827.9097
n = 15* (i.e. n x P/Y) (specifically mentioned) +7,21,822.1261 n = 3 x 1= 3
I% = 6 n = 15 x 4 = 60 = 8,41,650.0358 (i.e. n x P/Y)
PV = - 50,000 (i.e. n x P/Y) Net Balance I% = ? (4.472503893)

PMT = 0 I% = 7 = 8,41,650.0358 -1,00,000 PV = - 7,41,650.0358

FV = ? PV = 0 = 7,41,650.0358 PMT = 0
(1,19,827.9097) PMT = - 7000 FV = 8,45,678
P/Y = 1 FV = ? (7,21,822.1261) P/Y = 1
P/Y = 4 (quarterly
C/Y = 1 investments) C/Y = 1
C/Y = 1 C/Y = 1
40) A client seeking liquidity sets aside Rs. 22,000 in a bank account today. The account pays 8% p.a.
interest rate compounded half yearly. Because the client is concerned about the fact that the deposit
insurance covers the account for only upto Rs. 1,00,000. Calculate how many half years it’ll take to
reach that amount.

a) 38.60
b) 28.24
c) 75.97
d) 18.56

Ans: -

CMPD mode
o Set = Begin (The client has deposited the money “today”, therefore ‘begin’ mode)
o n = ? (19.30265427) (i.e. n x P/Y)
o I% = 8
o PV = - 22,000 (Cash Outflow, so “- ve”)
o PMT = 0
o FV = 1,00,000
o P/Y = 1
o C/Y = 2 (Compounded half yearly)

Therefore ,half years = 19.30 x 2 = 38.60 half years.

41) Ms. Dolly aged 30 years, is currently spending Rs. 1,20,000 p.a. on her living. Her financial advisor
has asked her to accumulate Rs. 50,00,000 in 30 years to take care of post retirement expenses which
is 15 years period. She can earn an interest rate of 10.08% p.a. on her investments. Calculate the
annual provision made by her financial advisor for her annual living expenses post retirement & by
what percentage rate the expenses will rise from the current time?

a) Rs. 4,99,900 & 5.51%

b) Rs. 6,99,900 & 4.51%
c) Rs. 5,99,903 & 5.51%
d) Rs. 3,99,900 & 4.51%

Ans: - CMPD mode

Annual post retirement living expenses Percentage rise of expenses

Set = Begin Set = Begin
n = 15 x 1 = 15 (i.e. n x P/Y) n = 30 x 1 = 30 (i.e. n x P/Y)
I% = 10.08 I% = ? (5.510739619)
PV = - 50,00,000 (Cash Outflow, so “- ve”) PV = - 1,20,000 (Cash Outflow, so “- ve”)
PMT = ? (5,99,903.3238) (Cash Inflow, so automatically PMT = 0
denoted with a “+ ve”) FV = 5,99,903.3238
FV = 0 P/Y = 1
P/Y = 1 C/Y = 1
C/Y = 1
C/Y = 1
42) Ms. Basu deposited Rs. 40,00,000 in annuity certain plan for 15 years. If she received Rs. 4,43,950
on a yearly basis in advance for full term. Calculate what rate of interest has been offered to her?

a) 7.17%
b) 6.50%
c) 7.75%
d) 8.50%

Ans: -
CMPD mode

o Set = Begin
o n = 15 x 1 (i.e. n x P/Y)
o I% = ? (8.50%)
o PV = - 40,00,000 (Cash Outflow, so “- ve”)
o PMT = 4,43,950 (Cash Inflow, so “+ ve”)
o FV = 0
o P/Y = 1
o C/Y = 1

43) Ms. Akansha is 28 years old, working in an IT company. She refinanced her housing loan from a
public sector bank for which she incurred a cost of 2.5% on her previous mortgage amount balance.
The previous loan balance was Rs. 12,50,000. If she’ll be paying an EMI of Rs. 7,064 for a period of 30
years, calculate what annualized rate of interest is charged from her?

a) 5.45%
b) 5.236%
c) 6.00%
d) 5.30%

Ans: -

New Loan Balance = Previous Balance + Cost

New Loan Balance = 12,50,000 + (12,50,000 x 12.50%)
Therefore New Loan Balance = Rs. 12,81,250

CMPD mode
o Set = Begin
o n = 30 x 12 = 360 (i.e. n x P/Y)
o I% = ? (5.235995058)
o PV = 12,81,250 (Cash Inflow, so “+ ve”)
o PMT = - 7,064
o FV = 0
o P/Y = 12 (Payments are made on monthly basis, so there’ll be 12 payments in a year)
o C/Y = 12 (Compounded monthly)

44) A person wants to earn Rs. 60,000 p.a. when the interest rate is 6%. What is the capital required?

a) Rs. 10,00,000
b) Rs. 5,00,000
c) Rs. 6,00,000
d) Rs. 7,00,000
Ans: -

CMPD Mode Perpetuity Method

Set = Begin Capital Required =
n = 100 (assumed) (‘n x P/Y’ is a very large no.) Annual PMT
I% = 6 i% p.a.
PV = ? (- 9,97,052.7738) (Cash Outflow,so “- ve”) (The
answer in this method will always be an approximate Capital Required = Rs. 60,000
answer)

PMT = 60,000 (Cash Inflow, so “+ve”) (will always be 0.06

annually in case of ‘perpetuity’ calculations)
FV = 0 Capital Required = Rs. 10,00,000
P/Y = 1
C/Y = 1

45) If you want to earn Rs. 15,000 a month, what is the capital required @ 8%?
a) Rs. 30,00,000
b) Rs. 15,00,000
c) Rs. 20,00,000
d) Rs. 22,50,000

Ans: - Annual PMT = Rs. 15,000 x 12 = Rs. 1,80,000

CMPD Mode Perpetuity Method

Set = Begin Capital Required =
n = 100 (assumed) (‘n x P/Y’ is a very large no.) Annual PMT
I% = 8 i% p.a.
PV = ? (- 22,48,977) (Cash Outflow,so “- ve”) (The
answer in this method will always be an Capital Required = Rs. 1,80,000
approximate answer)
0.08
PMT = 1,80,000 (Cash Inflow, so “+ve”) (will always be Capital Required = Rs. 22,50,000
annually in case of ‘perpetuity’ calculations)
FV = 0
P/Y = 1
C/Y = 1
46) You had taken a loan of Rs.1,00,000 from your friend & agreed to pay a monthly installment of
Rs.5,000 for 2 years & installments are to be paid in advance. What annual rate of interest has been
charged from you?

a) 21.77%
b) 21.70%
c) 18.15%
d) 20.25%
Ans: -
CMPD mode

o Set = Begin
o n = 2 x 12 = 24 (n x P/Y)
o I% = ?
o PV = 1,00,000
o PMT = - 5,000
o FV = 0
o P/Y = 1
o C/Y = 4
 Lecture # 3

Calculations of Cash Flow Mode, CNVR Mode & Returns (Historical & Futuristic): -

47) Ramesh will receive Rs. 25,000 & Rs. 15,000 at the end of 14 & 15 year respectively. If rate
of return is 6%. Compute the Present Value of the amount.

a) Rs. 17,316
b) Rs. 17,500
c) Rs. 18,200
d) Rs. 17,300

Ans: -

Properties of Cash Function:-

o Cash function is always in the “Begin Mode”

o Cash function can be used only when the payments / receipts are in the yearly fashion
(i.e. this function cannot be used when the payments / receipts are in any other mode other than yearly
Mode)
o Cash function denotes “Net Cash flow”, all receipts are in the positive mode while payments are in the
negative mode.
o Since the payments / receipts are in the yearly fashion, the compounding is also done on “annual”
basis only.

Cash Function
o i% = 6
o D. Editor x =
Year Cash Flow (X) Year Cash Flow (X)
1 0 9 0

2 0 10 0
3 0 11 0
4 0 12 0
5 0 13 0
6 0 14 0
7 0 15 25000
8 0 16 15000

o NPV = Solve = 17,316

48) Mohan invested Rs. 10,000 in XYZ mutual fund on 1/1/2000. He received cash dividends of
Rs. 200, Rs. 300, Rs. 200 & Rs. 300 at the end of 1st year, 2nd year, 3rd year & 4th year respectively. He
reinvested all the dividends received in the fund. He sold the fund in the beginning of the 5th year.
What is the IRR, if he sold the fund for Rs. 15,000?

a) 8.53%
b) 8.83%
c) 8.00%
d) 10.67%
Ans: -
Method # 1: - Cash Function
i% = 0
D.Editor X =

Year Cash Inflow Cash Outflow Net Cash

(Dividends received & Amount (Dividends reinvested & initial Flow
received on sales) capital invested)
1 0 -10000 -10000
2 200 -200 0
3 300 -300 0
4 200 -200 0
5 300+15000 -300 15000

o IRR = Solve = 10.67%

Method # 2: - CMPD Mode

Present Value of Rs. 25,000 Present Value of Rs. 15,000 Total Present Value
Set = End Set = End Total PV
n = 14 x 1 = 14 (i.e. n x P/Y) n = 15 x 1 = 15 (i.e. n x P/Y) = 11,057 + 6,259
I% = 6 I% = 6 = 17,316
PV = ? (11,057) PV = ? (6,259)
PMT = 0 PMT = - 7,064
FV = 25,000 FV = 15,000
P/Y = 1 P/Y = 1
C/Y = 1 C/Y = 1

49) Manish estimates his opportunity cost on investments to be 12% compounded annually.
Which one of the following is the best investment opportunity for Manish?

a) To receive Rs. 5,000 at the beginning of each six month period for 9 years
compounded semi annually.
b) To receive Rs. 40,000 at the end of 4 years & Rs. 1,20,000 eight years later (i.e. at the end of
the 12th year)
c) To receive Rs. 50,000 today
d) To receive Rs. 2,50,000 at the end of 14 years.

Ans: -
Option A Option B Option C Option D
Set = Begin Cash function PV = Rs. 50,000 Set = End
n = 9 x 2 = 18 i% = 12 n = 14 x 1 = 14
(i.e. n x P/Y) D. Editor x (i.e. n x P/Y)
I% = 12 Yr. 1 to Yr. 4 = 0 I% = 12
PV = ?(-
57,386.29845) Yr. 5 = 40,000 PV = ? (- 51,154.95)
PMT = 5,000 Yr. 6 to Yr. 12 = 0 PMT = 0
FV = 0 Yr. 13 = 1,20,000 FV = 2,50,000
P/Y = 2 NPV = Solve = 56,221.73 P/Y = 1
C/Y = 2 C/Y = 1

50) Raghavan will receive an annuity of Rs. 50,000 payable once every two years. The payments will
stretch out over 30 years. The first payment will be received at the end of two years. If the annual
interest rate is 8%, what is the Present Value of annuity?

a) Rs. 2,65,426
b) Rs. 2,70,620
c) Rs. 2,71,456
d) Data is insufficient to calculate the answer.

Ans: -Cash Function

o i% = 8
o D. Editor x =

Year Cash flow (X) Year Cash flow (X)

1 0 18 0
2 0 19 50000
3 50000 20 0
4 0 21 50000
5 50000 22 0
6 0 23 50000
7 50000 24 0
8 0 25 50000
9 50000 26 0
10 0 27 50000
11 50000 28 0
12 0 29 50000
13 50000 30 0
14 0 31 50000
15 50000
16 0
17 50000

NPV = Solve = Rs. 2,70,619.7919

51) What is the effective annual rate, if the stated nominal rate is 12% p.a. compounded
monthly?
a) 12.53%
b) 12.30%
c) 12.68%
d) 12.49%
Ans: -

Properties of CNVR mode: -

o n = C/Y (here in ‘C/Y’ stands for no. of annual compoundings)

o I% = ROI p.a.
o EFF = Used for calculating the “Effective Interest Rate”
o APR = Used for calculating the “Annual Percentage Rate” (also called the Nominal or
Stated Interest Rate)

CNVR Mode
o n = 12 (compounded monthly)
o I% = 12
o EFF = Solve = 12.68250301%

52) If the effective rate of interest is 17.87, then on a debt that has quarterly payments & compounded
quarterly, what is the nominal annual interest rate?

a) 16.78%
b) 18.92%
c) 20.93%
d) 21.00%

Ans: -
CNVR Mode

o n = 4 (compounded quarterly)
o I% = 17.87
o APR = Solve = 16.78378293%

53) The fixed deposit scheme of a bank offers 10% p.a. interest for 3 year deposit. If the
compounding is done semi annually, then effective annual interest rate is: -

a) 10%
b) 10.25%
c) 10.38%
d) 10.50%

Ans: -
CNVR Mode
o n = 2 (compounded semi annually)
o I% = 10
o EFF = Solve = 10.25%