a - 27 - time value of money (1)
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NAME: - RISHI KALE
ROLL NO. ² 27
TYBBA,
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Today¶s rupee is not equal to tomorrow¶s rupee.
why today¶s rupee is not equal to that of
tomorrow?
This is due to the following three factors:
Inflation
Risk Opportunity
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` Postponing the use of a rupee means postponing
consumption.
` Since money has a time value means we must tak e
this time value of money into consideration when we ar e mak ing financial decisions.
` Ther e ar e four f undamental time value of money
calculations.
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` Futur e Value of a Rupee calculation (FV)
` Pr esent Value of a Rupee calculation (PV)
` Futur e Value of an Annuity (FV of Annuity)
` Pr esent Value of an Annuity (PV of Annuity)
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` Financial decisions at Firm Level:
` (a) Investment Decisions
` (b) Financing Decisions
` Financial Decisions at Individual level:
` (a) Saving Deployment
`
(b) Borr owing
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oAs most financial decisions affect the cash f lows over a
long per iod of time, the explicit r ecognition of the timevalue of money becomes impor tant for rational and
optimal decisions.
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` Compound inter est is always assumed in Time Value
of Money pr oblems.
` In Time Value of Money applications, payments must
r epr esent all outf lows (negative amount) or allinf lows (positive amount).
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` Single Amount
` Annuity
` Since money has time value, the pr esent value of a
pr omised f utur e amount is wor th less the longer you
have to wait to r eceive it.
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` Single Amount
` Annuity
` Since money has time value, we naturally expect the f utur e value to be gr eater than the pr esent value.
` The differ ence between the two depends on the
number of compounding per iods involved and the
going inter est rate.
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` Time Value of Money is an impor tant concept in
financial management. It can be used to compar e
investment alter natives and to solve pr oblems
involving loans, mor tgages, leases, savings, and annuities.
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` Pear son Education Limited 2004, Fundamentals of Financial
Management, 12/e, Cr eated by: Gr egor y A. Kuhlemeyer ,
Ph.D., Carr oll College, Wauk esha, WI
` Notes on Financial Management BY MAHESH K. MADAN
` Jour nal of College Teaching & Lear ning Volume 1, Number 7
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` The Time Value of Money: AClar ifying and
Simplifying Appr oach Norman D. Gar dner , Utah
Valley State College
` http://www.getobjects.com/Components/Finance/
TVM/concepts.html
` http://wik i.answer s.com/Q/FAQ/1786-10` http://www.9-Zone.or g/Finance/Home.html
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` http://in.answer s.yahoo.com/question/nextQuestion;_ylt=AvDsU8UQBQurSbNFHUZynAuHHwx.;_ylv=3?qid=20080421125630AAqcR gQ&cid=396545322&state=r esolved
` http://cbdd.wdu.edu/k ewlcontant/cdoutput/TOm505/Ar ticle.html
` http://www.buzzle.com/author s.asp?author =3299