Time Value of Money 55CONCEPT TEST
State whether the following statements are true or false:- A series of periodic cash flows of equal amounts occurring at the end of each period is called an annuity.
- The Inverse of PVIF factor is FVIF factor.
- The present value of a series of cash flows occurring at the beginning of the year is the same as that occurring at the end of
the year. - The amount that must be set aside periodically to accumulate a stated amount in the future is called sinking fund.
- Nominal rate of interest = Effective rate when compounding is done annually.
- PVIFA/PVIF = FVIFA
Answers: 1–T, 2–T, 3–F, 4–T, 5–T, 6–T.
EXERCISE
SBI Housing Loan Scheme: A Caselet
State Bank of India offers a housing loan scheme to those who have regular monthly income. Loans are available for the
purchase of construction of new flat or house, repairs to the existing house, or purchase of an already constructed house
normally not more than 5 years old.
Loans are sanctioned depending upon the repayment capacity and the area as follows:
(a) Rural and semi-urban Rs 25,000 to 5 lac
(b) Urban Up to Rs10 lac
The individual is required to bring in margin money (contribution) depending on the loan amount:
(a) Up to Rs 25,000 20 percent
(b) Rs 25,000 – 50,000 25 percent
(c) Over Rs 50,000 and up to Rs 100,000 30 percent
(d) Over Rs 100,000 35 percent
The processing charges are:
(a) Up to Rs 25,000 Nil
(b) Above Rs 25,000 and 0.5 percent loan amount
up to Rs 200,000 Rs 500 more
(c) Above Rs 200,000 0.5 percent loan amount
The prevailing interest rate is:- Up to Rs 25,000 12 percent
- Above Rs 25,000 and up to Rs 200,000 13.5 percent
- Above Rs 200,000 and up to Rs 300,000 15.5 percent
- Above Rs 300,000 16.25 percent
The loan is to be repaid in equated monthly installments depending on the amount of loan, the applicable rate of interest and
period of the loan. The maximum repayment period is 15 years, including initial moratorium period of 18 months.
Prepare a repayment schedule, assuming a loan amount of Rs 500,000.