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Assignment No 1

Submitted by:
Tahir Shahid
Submitted to:
Mubashir Ali
Roll No:
MBPE-F17-006
Subject:
Strategic Finance
Topic:
Time Value of Money
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Question No 5-42
Case A

FV=PMT*{[(1+i)^n-1]/i}
5000=PMT*{[(1+0.12)^3-1]/0.12}
5000=PMT*{[(1.12)^3-1]/0.12}
5000=PMT*{[1.40492-1]/0.12}
5000=PMT*{0.40492/0.12}
5000=PMT*3.3744
PMT=5000/3.3744
PMT=1481.7449
Case B

FV=PMT*{[(1+i)^n-1]/i}
100000=PMT*{[(1+0.07)^20-1]/0.07}
100000=PMT*{[(1.07)^20-1]/0.07}
100000=PMT*{[3.86968-1]/0.07}
100000=PMT*{2.86968/0.07}
100000=PMT*40.9955
PMT=100000/40.9955
PMT=2439.2921
Case C

FV=PMT*{[(1+i)^n-1]/i}
30000=PMT*{[(1+0.1)^8-1]/0.1}
30000=PMT*{[(1.1)^8-1]/0.1}
30000=PMT*{[2.14358-1]/0.1}
30000=PMT*{1.14358/0.1}
30000=PMT*11.4358
PMT=30000/11.4358
PMT=2623.3407
Case D

FV=PMT*{[(1+i)^n-1]/i}
15000=PMT*{[(1+0.08)^12-1]/0.08}
15000=PMT*{[(1.08)^12-1]/0.08}
15000=PMT*{[2.51817-1]/0.08}
15000=PMT*{1.51817/0.08}
15000=PMT*18.9771
PMT=15000/18.9771
PMT=790.4263
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Question No 5-43
Part A
FV=PMT*{[(1+i)^n-1]/i}
220000=PMT*{[(1+0.08)^42-1]/0.08}
220000=PMT*{[(1.08)^42-1]/0.08}
220000=PMT*{[25.33948-1]/0.08}
220000=PMT*{24.33948/0.08}
220000=PMT*304.2435
PMT=220000/304.2435
PMT=723.1062
Part B
FV=PMT*{[(1+i)^n-1]/i}
FV=600*{[(1+0.08)^42-1]/0.08}
FV=600*{[(1.08)^42-1]/0.08}
FV=600*{[25.33948-1]/0.08}
FV=600*{24.33948/0.08}
FV=600*304.2435
FV=182546.1

Question No 5-44
Part A

FVIF=PV*(1+i)^n
FVIF=185000*(1+0.06)^20
FVIF=185000*(1.06)^20
FVIF=185000*3.2071
FVIF=593320.0624
Part B

FV=PMT*{[(1+i)^n-1]/i}
593295=PMT*{[(1+0.1)^20-1]/0.1}
593295=PMT*{[(1.1)^20-1 ]/0.1}
593295=PMT*{[6.72750-1]/0.1}
593295=PMT*{5.72750/0.1}
593295=PMT*57.2750
PMT=593295/57.2750
PMT=10358.7080
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Question No 5-45
Part A
PV=PMT/i
PV=6000/0.1
PV=60000
Part B
FV=PMT*{[(1+i)^n-1]/i}
60000=PMT*{[(1+0.1)^10-1]/0.1}
60000=PMT*{[(1.1)^10-1 ]/0.1}
60000=PMT*{[2.59374-1]/0.1}
60000=PMT*{1.59374/0.1}
60000=PMT*15.9374
PMT=60000/15.9374
PMT=3764.7295

Question No 5-46
Part A
FVIF=PV*(1+i)^n
FVIF=200000*(1+0.05)^25
FVIF=200000*(1.05)^25
FVIF=200000*3.3863
FVIF=677260
Part B
FV=PMT*{[(1+i)^n-1]/i}
677260=PMT*{[(1+0.09)^25-1]/0.09}
677260=PMT*{[(1.09)^25-1 ]/0.09}
677260=PMT*{[8.62308-1]/0.09}
677260=PMT*{7.62308/0.09}
677260=PMT*84.7008
PMT=677260/84.7008
PMT=7995.9103

Question No 5-47
Case A
PV=PMT*{1-[1/(1+i)^n]/i}
12000=PMT*{1-[1/(1+0.08)^3]/0.08}
12000=PMT*{1-[1/(1.08)^3]/0.08}
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12000=PMT*{1-[1/1.2597]/0.08}
12000=PMT*{1-0.7938/0.08}
12000=PMT*{0.2062/0.08}
12000=PMT*2.5771
PMT=12000/2.5771
PMT=4656.3967
Case B
PV=PMT*{1-[1/(1+i)^n]/i}
60000=PMT*{1-[1/(1+0.12)^10]/0.12}
60000=PMT*{1-[1/(1.12)^10]/0.12}
60000=PMT*{1-[1/3.10585]/0.12}
60000=PMT*{1-0.32197/0.12}
60000=PMT*{0.67802/0.12}
60000=PMT*5.6502
PMT=60000/5.6502
PMT=10619.0931
Case C

PV=PMT*{1-[1/(1+i)^n]/i}
75000=PMT*{1-[1/(1+0.1)^30]/0.1}
75000=PMT*{1-[1/(1.1)^30]/0.1}
75000=PMT*{1-[1/17.4494]/0.1}
75000=PMT*{1-0.0573/0.1}
75000=PMT*{0.9427/0.1}
75000=PMT*9.4269
PMT=75000/9.4269
PMT=7955.96
Case D
PV=PMT*{1-[1/(1+i)^n]/i}
4000=PMT*{1-[1/(1+0.15)^5]/0.15}
4000=PMT*{1-[1/(1.15)^5]/0.15}
4000=PMT*{1-[1/2.0114]/0.15}
4000=PMT*{1-0.4972/0.15}
4000=PMT*{0.5028/0.15}
4000=PMT*3.3521
PMT=4000/3.3521
PMT=1193.28
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Question No 5-48
Part A
PV=PMT*{1-[1/(1+i)^n]/i}
15000=PMT*{1-[1/(1+0.14)^3]/0.14}
15000=PMT*{1-[1/(1.14)^3]/0.14}
15000=PMT*{1-[1/1.4815]/0.14}
15000=PMT*{1-0.6749/0.14}
15000=PMT*{0.3250/0.14}
15000=PMT*2.3216
PMT=15000/2.3216
PMT=6461.0613
Part B

Years Outstanding Amount Installment Interest 14% Principle Payment

1 15000 6461 2100 4361
2 10639 6461 1489 4972
3 5667 6461 794 5667
Part C
Interest amount is decreed with the passage of time due to decreased in
principal Amount.

Question No 5-49
Part A
PV=PMT*{1-[1/(1+i)^n]/i}
10000=PMT*{1-[1/(1+0.13)^3]/0.13}
10000=PMT*{1-[1/(1.13)^3]/0.13}
10000=PMT*{1-[1/1.4429]/0.13}
10000=PMT*{1-0.6931/0.13}
10000=PMT*{0.3069/0.13}
10000=PMT*2.3612
PMT=10000/2.3612
PMT=4235.1347
Part B
Years Outstanding Amount Installment Interest 13% Principle Payment
1 10000 4235 1300 2935
2 7065 4235 918 3317
3 3748 4235 487 3748
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Question No 5-50
Part A
PV=PMT*{1-[1/(1+i)^n]/i}
4000=PMT*{1-[1/(1+0.12)^24]/0.12}
4000=PMT*{1-[1/(1.12)^24]/0.12}
4000=PMT*{1-[1/15.1786]/0.12}
4000=PMT*{1-0.0659/0.12}
4000=PMT*{0.9341/0.12}
4000=PMT*7.7843
PMT=4000/7.7843
PMT=513.8548
Part B
Years Outstanding Amount Installment Interest 9% Principle Payment
1 4000 514 360 154
2 3846 514 346 168
3 3678 514 331 183
4 3495 514 315 199
5 3296 514 297 217
6 3078 514 277 237
7 2841 514 256 258
8 2583 514 232 282
9 2302 514 207 307
10 1995 514 180 334
11 1660 514 149 365
12 1296 514 117 397
13 898 514 81 433
14 465 514 49 465

Question No 5-51
Case A
FV=PV*(FVIF)i,n
800=500*(FVIF)i,4
(FVIF)i,4=800/500
(FVIF)i,4=1.6
i=12%
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Case B
FV=PV*(FVIF)i,n
2280=1500*(FVIF)i,9
(FVIF)i,9=2280/1500
(FVIF)i,9=1.52
i=5%
Case C
FV=PV*(FVIF)i,n
2900=2500*(FVIF)i,6
(FVIF)i,6=2900/2500
(FVIF)i,6=1.16
i=3%

Question No 5-52
Case A
FV=PV*(FVIF)i,n
2000=1500*(FVIF)i,3
(FVIF)i,3=2000/1500
(FVIF)i,3=1.3333
i=10%

Case B

Rishi Sing Must Select rate of interest 10% instead of 8% because the profit margin
in 10% is high

Question No 5-53
Case A
FV=PV*(FVIF)i,n
8400=5000*(FVIF)i,6
(FVIF)i,6=8400/5000
(FVIF)i,6=1.68
i=9%

Case B
FV=PV*(FVIF)i,n
15900=5000*(FVIF)i,15
(FVIF)i,15=15900/5000
(FVIF)i,15=3.18
i=8%
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Case C
FV=PV*(FVIF)i,n
7600=5000*(FVIF)i,4
(FVIF)i,4=7600/5000
(FVIF)i,4=1.52
i=11%

Case D
FV=PV*(FVIF)i,n
13000=5000*(FVIF)i,10
(FVIF)i,10=13000/5000
(FVIF)i,10=2.6
i=10%
Part B
I recommend to Clare to invest in case c because the rate of return in case c is high
and Clare earn high profit.

Question No 5-54

PV=PMT*(PVFA)i,n
10606=2000*(PVFA)i,10
(PVFA)i,10=10606/2000
(PVFA)i,10=5.303
i=14%

Question No 5-55
Part A
Case A
PV=PMT*(PVFA)i,n
30000=3100*(PVFA)i,20
(PVFA)i,20=30000/3100
(PVFA)i,20=9.6774
i=8%
Case B
PV=PMT*(PVFA)i,n
25000=3900*(PVFA)i,10
(PVFA)i,10=25000/3900
(PVFA)i,10=6.4102
i=9%
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Case C
PV=PMT*(PVFA)i,n
40000=4200*(PVFA)i,15
(PVFA)i,15=40000/4200
(PVFA)i,15=9.5238
i=6%
Case D
PV=PMT*(PVFA)i,n
35000=4000*(PVFA)i,12
(PVFA)i,12=35000/4000
(PVFA)i,12=8.75
i=5%

Part B
I recommend Giana to select case b because in this case rate of interest is high she
get high profit.

Question No 5-56
Case A
PV=PMT*(PVFA)i,n
2000000=156000*(PVFA)i,25
(PVFA)i,25=2000000/156000
(PVFA)i,25=12.8205
i=6%
Case B
PV=PMT*(PVFA)i,n
2000000=255000*(PVFA)i,25
(PVFA)i,25=2000000/255000
(PVFA)i,25=7.8431
i=12%
Case C
PV=PMT*(PVFA)i,n
2000000=PMT*(PVFA)9%,25
PMT=2000000/9.8226
PMT=203612.0783

Question No 5-57
Case A
PV=PMT*(PVFA)i,n
5000=1352.81*(PVFA)i,5
(PVFA)i,5=5000/1352.81
(PVFA)i,5=3.6960
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i=11%
Case B
PV=PMT*(PVFA)i,n
5000=1543.21*(PVFA)i,4
(PVFA)i,4=5000/1543.21
(PVFA)i,4=3.2399
i=9%
Case C
PV=PMT*(PVFA)i,n
5000=2010.45*(PVFA)i,3
(PVFA)i,3=5000/2010.45
(PVFA)i,3=2.4870
i=10%

Part B
Joan should take the loan B because the interest rate is less and the interest
amount also less.

Question No 5-58
Case A
FV=PV*(FVIF)i,n
1000=300*(FVIF)7%,n
(FVIF)7%,n=1000/300
(FVIF)7%,n=3.333333333
n=18 Years
Case B
FV=PV*(FVIF)i,n
15000=12000*(FVIF)5%,n
(FVIF)5%,n=15000/12000
(FVIF)5%,n=1.25
n=5 Years
Case C
FV=PV*(FVIF)i,n
20000=9000*(FVIF)10%,n
(FVIF)10%,n=20000/9000
(FVIF)10%,n=2.222222
n=8 Years
Case D
FV=PV*(FVIF)i,n
500=100*(FVIF)9%,n
(FVIF)9%,n=500/100
(FVIF)9%,n=5
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n=19 Years
Case E
FV=PV*(FVIF)i,n
30000=7500*(FVIF)15%,n
(FVIF)15%,n=30000/7500
(FVIF)15%,n=4
n=10 Years

Question No 5-59
Case A
FV=PV*(FVIF)i,n
20000=10000*(FVIF)10%,n
(FVIF)10%,n=20000/10000
(FVIF)10%,n=2
n=7 Years
Case B
FV=PV*(FVIF)i,n
20000=10000*(FVIF)7%,n
(FVIF)7%,n=20000/10000
(FVIF)7%,n=2
n=10 Years
Case C
FV=PV*(FVIF)i,n
20000=10000*(FVIF)12%,n
(FVIF)12%,n=20000/10000
(FVIF)12%,n=2
n=6 Years
Case D
The relation between interest and the amount of time is inverse relation if the interest
rate increase the amount time is decreased.

Question No 5-60
Case A
PV=PMT*(PVFA)i,n
1000=250*(PVFA)11%,n
(PVFA)11%,n=1000/250
(PVFA)11%,n=4
n=6 Years
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Case B
PV=PMT*(PVFA)i,n
150000=30000*(PVFA)15%,n
(PVFA)15%,n=150000/30000
(PVFA)15%,n=5
n=10 Years
Case C
PV=PMT*(PVFA)i,n
80000=10000*(PVFA)10%,n
(PVFA)10%,n=80000/10000
(PVFA)10%,n=8
n=17 Years
Case D
PV=PMT*(PVFA)i,n
600=275*(PVFA)9%,n
(PVFA)9%,n=600/275
(PVFA)9%,n=2.181818182
n=3 Years
Case E
PV=PMT*(PVFA)i,n
17000=3500*(PVFA)6%,n
(PVFA)6%,n=17000/3500
(PVFA)6%,n=4.857142857
n=6 Years

Question No 5-61
Case A
PV=PMT*(PVFA)i,n
14000=2450*(PVFA)12%,n
(PVFA)12%,n=14000/2450
(PVFA)12%,n=5.714285714
n=10 Years
Case B
PV=PMT*(PVFA)i,n
14000=2450*(PVFA)9%,n
(PVFA)9%,n=14000/2450
(PVFA)9%,n=5.714285714
n=8 Years
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Case C
PV=PMT*(PVFA)i,n
14000=2450*(PVFA)15%,n
(PVFA)15%,n=14000/2450
(PVFA)15%,n=5.714285714
n=14 Years
Case D
The relation between interest and the amount of time is direct relation if the interest
rate increase the amount time is also increased.