Question

1. After 10 years your business need Tk. 10,00,000. You maintain a sinking fund and deposit some money at the beginning of each year for 10 years. If the interest rate is 5% then how much must the payment be to attain your requirements?
2. Mr. Mannan borrow Tk. 5,00,000 from a bank for purchasing a shop. If he pays annual equal installments for 10 years at 8% interest rate on outstanding balance. Then what is the installment amount if he makes installment at the end of each year?
3. If you receive Tk. 500 for each year until you died / forever. If the opportunity cost/discount rate is 6% then what is the value of this perpetual amount?
4. What is the value of a bond paying 1000 per year for infinite time and the interest rate is 7%.

Answer 1

1. Use PMT function to find the yearly deposits made at the begining of the year

=PMT(rate,nper,pv,fv,type)

rate=5%

nper=10 years

pv=0

fv=1000000

type=1 (Because payments made at the begining of the years)

=PMT(5%,10,0,1000000,1)=$75,718.64

The deposits made at the begining of the year=$75,718.64

2. rate=8%

nper=10 years

pv=500000

fv=0

type=0 (Because payments made at the end of the years)

=PMT(8%,110,-500000,0,0)=$74,514.74

The payments made at the end of the year=$74,514.74

3. Value of perpetuial amount=annual payment/discount rate=500/6%=$8333.33

4. value of the bond=1000/7%=$14,285.71