Operation Management

TUTORIAL QUESTIONS (TIME VALUE OF MONEY)

QUESTION 1

If you have a choice to earn simple interest on RM10,000 for three years at 8% or compound interest at 7.5% for three years, which one will pay more and by how much?

QUESTION 2

If you wish to accumulate RM140,000 in 13 years, how much must you deposit today in an account that pays an annual interest rate of 14%?

QUESTION 3

At what annual interest rate must RM124,925 be invested so that it will grow to be RM475,000 in 14 years?

QUESTION 4

How many years will it take for RM29,916 to grow to be RM554,000 if it is invested in an account with a quoted annual interest rate of 12% with semi-annual compounding of interest?

QUESTION 5

Amelia has an opportunity to receive RM300 one year from now. If he can earn 6% on his investments in the normal course of events, what is the most he should pay now for this opportunity?

QUESTION 6

You have a chance to buy an annuity that pays RM1,000 at the end of each year for 5 years. You could earn 6% on your money in other investments with equal risk. What is the most you should pay for the annuity?

QUESTION 7

What’s the present value of a perpetuity that pays RM100 per year if the appropriate interest rate is 6%?

QUESTION 8

What’s the rate of return you would earn if you paid RM1,500 for a perpetuity that pays RM105 per year?

QUESTION 9

You plan to buy a second-hand car that has a total "drive-out" cost of RM25,700. You will make a down payment of RM3,598. The remainder of the car’s cost will be financed over a period of 5 years. You will repay the loan by making equal monthly payments. Your quoted annual interest rate is 8% with monthly compounding of interest. (The first payment will be due one month after the purchase date.) What will your monthly payment be?

QUESTION 10

When Aisya was born, her parents invested RM7,000 in a savings account paying 8% interest. Each year, starting with her first birthday and ending on her eighteenth birthday, her...