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The Institute of Chartered Accountants of Sri Lanka
Postgraduate Diploma in Business Management
Financial Mathematics
1. If a person plans to deposit Rs. 28,400 per year for the next six years starting from
end of the current year. If bank pays 9% interest per year, what will be the total
amount at the end of the sixth year?
2. You have been depositing Rs. 6,000 at the end of every month for the last 10 years
in a bank which pays 12% interest. Find the amount available at the end of the 10th
year.
3. Rs 1,200 is invested at the beginning of every month in a deposit account for 10
years at 12%. What is the value of the investment at the end of 10 years.
4.
An Estate Agency purchases a photo-copying machine for Rs. 85 000 and realize
that they will have to replace it in 5 years time. They predict that the inflation rate
will be 8% p.a. and that their machine will depreciate at a rate of 6% p.a. They thus
create a sinking fund depositing end of every quarter to take care of the inflation
rate. Assuming that they will trade in their present machine, what amount of money
must be paid into the fund if the interest rate is 12% p.a. compounded quarterly?
5. In order to save Rs. 5,000,000 for his retirement Nimal wants to put a fixed amount
each month into a savings account that pays interest at an annual rate of 12%
compounded monthly. If he plans to save in this way 20 years, how much should his
monthly payment be to achieve his goal?
6. At retirement, a client has two payment options: a 20- year annuity at Rs. 50,000 per
year starting after one year or a lump sum of Rs. 500,000 today. If your clients
required rate of return on retirement fund investment in 6 percent, which plan has
the higher present value and by how much?
7. Mr. Perera is planning to apply for a housing loan from a state bank. He estimates
that from his monthly salary he could maximum afford to set a side is Rs. 5,000 for
this loan settlement and the interest due. He also wishes to completely set off this
loan within 8 years. what is the maximum loan amount? Consider interest rate as
12%.
8. A person is having a loan of Rs. 10 million has an average finance cost of 18%. If it
plans to set off this loan in 15 years, what is the monthly installment should it pay to
the bank.
9. A stock position pays quarterly dividends of Rs. 1,000 indefinitely (forever). If an
investor has an opportunity cost of 12 percent compound quarterly on this type of
investment, how much should he be willing to pay for this dividend stream?
10. Ms. Pabawathi buys a car for a down payment of Rs. 120 000 and payments of
Rs. 32000 per month for 3 years. If the interest rate is 12% p.a., compounded
monthly, what is the actual purchase price of the car?
11. A loan of Rs. 50 000 is to be paid off in four equal payments at the end of each
quarter in a particular year. Assuming an interest rate of 20%, calculate:
a) The amount of each payment.
b) The total amount of interest paid.
12. A person is paying Rs.6,000 as monthly installment as a repayment of a loan of
200,000. The loan duration is 4 years. After payment of 30 installments he decided
to settle the loan. Compute the interest rebate. How much he should pay to settle the
loan.
13. Rs,800,000 loan is to be settled in 6 years paying 12,000 as monthly installment.
After paying installments for four years he decided to settle the loan. Compute the
interest rebate. How much he should pay to settle the loan.
14. Rs,1,000,000 loan is to be settled in 10 years paying 16,000 as monthly instalment.
After paying instalments for eight years he decided to settle the loan.
i)
Compute the interest rebate.
ii)
If bank charges 2% penalty from the capital remaining, is it worth to settle
the loan?
How much he should pay to settle the loan?
Nishantha Palihawadana