Category Archives: TIME VALUE OF MONEY

Quarterly Compounding

Quarterly Compounding  Means that there are four compounding periods within the year. Instead of paying the interest once a year, it is paid in four equal installments after every three months. Using the above illustration, there will be eight compounding periods and the rate of interest for each compounding period will be 1:5 pet cent, that is 1/4 of 6 per cent). Table 2.3 presents the relevant calculations reg

Semi-annual Compounding (Table)

Semi-annual Compounding Table 2.2 Table 2.2 reveals that his savings will amount to Rs1.06090 and Rs 1.125.51 respectively at the end of’the first and second years Finance-Assignments.comInstructions Feel free to send us an inquiry, we reply back real quick. Or directly email us at order@finance-assignments.comName *Email *Phone *Requirements/ Instructions File Upload File Upload File Upload  V

Semi-annual Compounding

Semi-annual Compounding Means that there are two compounding periods within the year. Interest is actually paid after every six months at a rate of one-half of the annual (stated) rate of interest. Finance-Assignments.comInstructions Feel free to send us an inquiry, we reply back real quick. Or directly email us at order@finance-assignments.comName *Email *Phone *Requirements/ Instructions File Upload

Semi-annual and Other Compounding Periods

Semi-annual and Other Compounding Periods In the above examples, we have assumed annual compounding of interest at the end of the year. Very often the interest rates are compounded more than once in a year. Savings institutions, particularly, compound interests semi-annually, quarterly and even monthly. Finance-Assignments.comInstructions Feel free to send us an inquiry, we reply back real quick. Or directl

Annual Compounding (Table)

Annual Compounding Table 2.1 Annual Compounding  This compounding procedure will continue for an indefinite number of years. The compounding of interest can be calculated by the following equation: Thus, after substitution the actual figures' for the investment of Rs 1,000 in the formula A = P (1 + 1l), we arrive at the same result as in Table 2.1. This is the fundamental equation of . compound interest. The f

Compounding Technique (Example)

Example 2.1 If Mr X invests in a saving bank account Rs 1,000 at 5 per cent interest compounded annually. at the end of the first year, he will have Rs, 1.050 in his account. This amount constitutes the principal for earning interest for the next year. At the end of the next year, there would be Rs 1,102.50 in the account. This would represent the principal for the third year. The amount of interest earned would

TECHNIQUES

TECHNIQUES The preceding discussion has revealed that in order to have logical and meaningful comparisons between cash flows that result in different time periods it is necessary to convert the sums of money to a common point in time. There are two techniques for doing this: (1) Compounding, and (2) Discounting.

Compounding Technique

Compounding Technique Interest is compounded when the amount carried on an initial deposit (the initial principal) becomes part of the principal at the end of the first compounding period. The term principal refers to the amount of money on which interest is received. Consider Example 2.1 Finance-Assignments.comInstructions Feel free to send us an inquiry, we reply back real quick. Or directly email us at o

RATIONALE

RATIONALE Conceptually time value of money means that the value of a unit of money is different in different time periods, The value of a sum of money received today is more than its value received after some time Conversely, the sum of money received in future is less valuable than it is today. In other words, the present worth of a rupee received after some time will be less than a rupee received today, Since

TIME VALUE OF MONEY

TIME VALUE OF MONEY INTRODUCTION The object of this Chapter is,to illustrate the basics of the mathematics of finance, that the value of money. Recognition of the time value of money in financial decision making is extremely important. It is observed in Chapter 1 wealth maximization, as an objective of financial management. is superior to profit maximization caucus. among other things, the former incorporates t