Future Value of a Single Amount Problems and Solutions
Previous Lesson: Finance Problems
Next Lesson: Present Value of a Single Amount Problems
Problem 1: Simple interest and compound interest
Calculate simple interest and compound interest assuming that principal amount is Rs. 10,000; interest rate is 9% for three years. What is the amount different between compound and simple interest?
Solution:
Difference = 2,950.29 – 2,700 = Rs. 250.29
>> Other Related Practice Finance Problems
Problem 2: Future value of money
You are scheduled to receive Rs. 13,000 in two years. When you receive it, you will invest it for six more years at 8 percent per year. How much will you have in eight years?
Solution:
13,000 (1 + 0.08) 6
Answer: Rs. 20,629.37
>> More Practice Present Value Problems
Problem 3: Future value intra-year compounding
You have Rs. 9,000 to deposit. ABC Bank offers 12 percent per year compounded monthly, while King Bank offers 12 percent but will only compound annually. How much will your investment be worth in 10 years at each bank?
Solution:
ABC Bank
9,000 (1 + 0.12/12) 10 * 12
Answer: Rs. 29,703.48
King Bank
9,000 (1 + 0.12) 10
Answer: Rs. 27,952.63
Variance Rs. 1,750.85
>> Download Future Value Table
Problem 4: Future value of a single amount
You invest Rs. 10,000. During the first year the investment earned 20% for the year. During the second year, you earned only 4% for that year. How much is your original deposit worth at the end of the two years?
Solution:
FV =10,000 (1.20) (1.04)
Answer: Rs. 12,480
Answer: Rs. 4,643.28
Problem 5: Simple interest
Ali deposited Rs. 2,500 in an account that pays 6% simple interest. How much money will he have at the end of 3 years?
Solution:
2,500 + (2,500 * 0.06 * 3)
Answer: Rs. 2,950
Problem 6: Future value annual compounding
What is the future value of Rs. 26 invested for 32 years at an average rate of return of 7%?
Solution:
FV = 26 (1.07) 32
Answer: Rs. 226.60
Problem 7: Different cases of compounding
If interest is compounded quarterly, how much will you have in a bank account?
(a) If you deposit today Rs. 8,000 at the end of 3 months, if the bank pays 5.0% APR?
Solution:
8,000 (1 + 0.05 / 4)
Answer: Rs. 8,100
(b) If you deposit today Rs. 10,000 at the end of 6 months, if the bank pays 9.0% APR?
Solution:
10,000 (1 + 0.09 / 4) 2
Answer: Rs. 10,455.06
(c) If you deposit today Rs. 80,000 at the end of 12 months, if the bank pays 8.0% APR?
Solution:
80,000 (1 + 0.08 / 4) 1 * 4
Answer: Rs. 86,594.57
(d) If you deposit today Rs. 5,000 at the end of 24 months, if the bank pays 5.0% APR and compound monthly?
Solution:
5,000 (1 + 0.05 / 4) 2 * 4
Answer: Rs. 5,522.43
Problem 8: Future value based on flexiable interest rates
Find the future value of Rs. 100,000 for 15 years. The current five-year rate is 6%. Rates for the second and third five-year periods and expected to be 6.5% and 7.5%, respectively.
Solution:
FV = 100,000 (1.06)5(1.065)5(1.075)5
FV = 100,000 (1.3382) (1.37009) (1.43563)
FV = 100,000 (2.6322)
Answer: Rs. 263,220
Problem 9: Compounding based on flexiable interest rates
The Green Corporation needs Rs. 50 million to repay a loan which is due at the end of seven years. If Green makes the following sinking fund payments, will there be sufficient funds available to repay the loan on schedule?
Solution:
FV of the Rs. 12 million = 12(1.11)7 = Rs. 24.9139
FV of the Rs. 10 million = 10 (1.1)5 = Rs. 16.1051
FV of the Rs. 8 million = 8(1.09)3 = Rs. 10.3602
Answer: Rs. 51.382 Million
Problem 10: Future value of single amount
If farm land is currently worth Rs. 1,750 per acre and is expected to increase in value at a rate of 5 percent annually, what will it be worth in 5 years? In 10 years? In 20 years by factor formula and table?
Solution:
5 years: Rs. 1,750 * 1.2763
Answer: Rs. 2,233.53
10 years: Rs. 1,750 * 1.6289
Answer: Rs. 2,850.58
20 years: Rs. 1,750 * 2.6533
Answer: Rs. 4,643.28
I am actually thankful to the holder of this website
who has shared this enormous paragraph at at this place.
Very energetic article, I enjoyed that bit. Will there be more problems?
love this blog
Very soon this website will be famous among all blogging viewers, due to it’s fastidious articles|
Thanks for sharing