Assume an interest rate of 10 per cent for all the following problems:

a. You have ₹10,000 now. How much will you have after five years? After 10 years? Does the amount increase or decrease? Why?

b. A lottery won by you promises ₹10,000 after four years, ₹15,000 after eight years and

₹20,000 after 12 years. Your friend offers to pay you in exchange for the lottery: 

(i) ₹18,000,

(ii) ₹22,000. Should you accept the offer? 

At what amount will you break-even?

c. A lottery promises ₹10,000 every year, starting from the end of the first year hence, for the next 10 years. What is it worth? What if the lottery payment starts immediately?

d. Your daughter is keen to pursue her MBA. She is currently in the 5th standard and will be able to pursue her MBA after 10 years. An MBA is expected to cost ₹1 million per annum for the two years. How much should you save every year to be able to fund her MBA?

e. You expect to obtain a loan of ₹400,000 per year for the two years of her MBA. You expect to save the same amount every year. How many years prior to her MBA do you need to start saving?

f. The loan needs to be paid back in 10 years but starting 1 year after her MBA is completed.

What is the annual repayment amount?

g. How long must a stream of ₹10,000 payments last to justify a price of ₹61,446? Suppose, the payments lasted only 7 years. How large should the salvage value be to justify the initial investment of ₹61,446?