Question

Time Value of Money

1. En. Ahmad invested Rm50,000 in a mutual fund 5 years ago. The fund provided
compounded rate of return of 7% p.a over the last 5 years. What is the value of En.
Ahmad’s investment now?

2. Johnny has a child whose education plan requires RM500,000 to finance the
completion of his tertiary education 10 years from today. Johnny has set aside
RM200,000 for this purpose. He wants to know what investment rate of return is
required over the next 10 years that will enable him to meet the financial goal?

3. Mr. Muthusamy has RM60,000 now and hopes to have RM150,000 for retirement 8
years later. What rate of return will enables him to meet his financial target?

4. How long Mathews needs to wait before his existing RM50,000 grow to become
RM150,000 if it is parked in an investment vehicle with annual rate of return of 6%.

5. Mary agrees to set aside RM5,000 in an investment vehicle every year for a period of
10 years. The rate of return is 7% p.a.. How much will be available after period of 10
years?.

6. Kenny wishes to have RM200,000 in 15 years to meet his child’s cost of education in
a local college. He can afford to set aside RM5,000 every year starting immediately.
The return on investment is 7% p.a. Based on the regular wealth accumulation
programme, is Kenny able to meet its objective?. How much should Kenny saves every
year for him to achieve his target?.

7. Mr. Eastwood plans to place RM75,000 in a fixed deposit account with interest rate of
4% p.a. The fixed deposit pay interest every quarter but the amount is re-deposited
to earn interest. He wishes to know how much money is available after 10 years

Answer 1

Answer to Question 1:

Amount invested = 50,000
Rate of return = 7%
Period = 5 years

Value of investment = Amount invested * (1 + Rate of return)^Period
Value of investment = 50,000 * 1.07^5
Value of investment = 70,127.59

Answer to Question 2:

Amount deposited = 200,000
Desired sum = 500,000
Period = 10 years

Desired sum = Amount deposited * (1 + Rate of return)^Period
500,000 = 200,000 * (1 + Rate of return)^10
2.50 = (1 + Rate of return)^10
1.0960 = 1 + Rate of return
Rate of return = 0.0960 or 9.60%