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Time Value of money Sample Assignment

Question: Rs.1,000 is deposited into an interest bearing account that pays 10% interest compounded yearly. The investor's goal is Rs.1,500. How many years must the principal earn compound interest before the desired amount is realized?

Answer: This situation can be visualized as to what is the time period over which the amount of Rs.1,000 will cumulate to Rs.1,500 at 10% rate of interest.

            Substituting the values in the equation, 

             FV                           =        PV(1 + r)ⁿ

                Rs.1,500                  =        Rs.1,000(1 + 10)ⁿ

             Rs.1,500/Rs.1,000      =           (1 + .10)ⁿ  

                1.5                               =           (1 + .10)ⁿ

Now, look up the 10% column in Table and read vertically until a value that equals or approximates the computed value of 1.5 is found. This is 1.611, which corresponds to 5 years. If Rs.1,000 principal is left at 10% interest for 5 years, the resulting compound amount will be Rs.1.611. This exceeds the desired Rs.1,500. If the same principal was left at 10% for only 4 years, the compound amount available will be only Rs.1,464. The investor should leave the deposit for the entire fifth year because of the assumption of compounding only at the end of each years, and he will then receive an amount of Rs.1,611.

Other Sample Assignments in Finance Homework Assignment :

Time Value of money	Future Value of Annuity
Current working capital cycle	Operating Cycle
Receipt And Payments Method Of Preparation Of Cash	Equiyty Per Share

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