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OBJECTIVES
LEARNING
Types of Interest
Simple Interest ; I= P *n * i
Compound Interest ; F = P(1+i)n or
(principal amount).
In this case interest earned is directly proportional to capital
I= P * i *N
F= P . (1 + i)n
F- Future amount,
i- interest rate compounded annually,
i
%
10
10
Rs
Rs
Rs
Rs
Rs
Rs
time
Payment (expenditures)
+
-
Loan in Rs
Payment (receipt)
time
i
%
10
Solved Problems
1.
2.
Determine the amount P that you should deposit into an account 2 years from
now, in order to be able to withdraw Rs. 4000/- per year for 5 years starting 3
years from now, at an interest rate of 15% per year ?
3.
A company is planning to make two equal deposits such that 10 years from
now the company will have $ 49000 to replace a small machine. If the first
deposit is to be made 1 year from now and the second is to be made 9 years
from now, how much must be deposited each time if the interest rate is 15%
per annum ?
Solved Problems
4.
Determine the future amount of Rs. 100/- payment deposited at the end of
each of the next five years and earning 6% per annum.
5.
6.
7.
Solved Problems
8. Arun buys a car, making an initial payment of Rs. 1,00,000/- and taking a loan
of Rs. 1,50,000 from ICFC Bank. He makes equal monthly repayments of
Rs.8000 to ICFC Bank, to clear the loan in full for a period of 2 years. After
making the last payment, he sells the car for Rs. 1,50,000. Draw two CFDs
one for Arun and one for ICFC Bank for the above cash flow.
Recap
What is Time Value of
Money
Method / Types of Interest
Cash flow Diagram
Types of Compound Interest
Formulas.