Time Value of Money – Practical Applications

Time Value of Money – Practical Applications

1. The HR head, Suresh Krishna of Dorr has been asked by the CEO to project the likely employee strength after 10years. The current strength is 5000 employees, and based on the future plans, he expects the strength to by 5% every year.  
2. Supposing you have inherited an ancestral property which was bought for Rs 25 /- in 1624. If the average appreciation in the value can be considered to be 6% per annum, what would be the value of the property you have inherited as to today?
3. Indiana Limited has worked out a strategy to scale up the turnover from the present level of Rs 100 million to Rs 1000 million 2021. The CEO asks the Finance Head to work out the Compounded Annual Rate of Growth (CARG).
4. Ravi, a young employee of 28 years, working as a software engineer for a company decides that based on his net salary he can deposit an amount of Rs 30,000/- every year into the Public Provident Fund for the balance tenure of his employment. The Provident fund trust is expected to declare an average annual interest @9% every year. The retirement age of the company is 58. He seeks financial advise to understand what would the amount become at the time of this retirement.
5. Sunil is keen to invest in a house but finds out that he is short of finance and he needs to save enough before he can buy one. He expects two bedroom apartment at the end of the 5 years would be around Rs 7 million. He seeks financial advice as to how much he should save annually and put these into deposits which is expected to earn interest of 12% annually.
6. Future Limited has an obligation to redeem Rs 500 million bonds in 6 years. How much should the company deposit annually in a sinking fund wherein it earns 14% interest to cumulate Rs 500 million in 6 years time?
7.  Angle Finance has issued an advertisement seeking deposits. The advertisement indicates that the company will pay a lump sum of Rs 9000/- at the end of 6 years for any investor who deposits annually Rs 1000/- for 6 years. What would be the interest rate offered by the company?
8. Kishore  wants to buy a car. After reviewing his net take home salary, he has found out that he can afford to pay Rs 12,000/- per month for 3 years for a new car. Interest on the car loan shall be @14% per annum compounded monthly.
9. Adarsh Limited has borrowed Rs 1 million at an interest rate of 15% and the loan is to be repaid in five equal instalment payable at the end of the next 5 years. What would be the annual installment payment? What would be the amortisation schedule
10. Satish as the borrower has two financing options available from the lender. The first option is to offer loan at 21% while in second case it is at 22.5%. In the first case compounding is done on a quarterly basis, while in the second case it is on annual basis. Which of the two options would be better for Satish?

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