Premier University Chittagong

Assignment
COURSE TITLE: BUSINESS FINANCE

ASSIGNMENT TOPIC: Time value of Money

SUBMITTED TO

MS. ADNIN RIFAT

LECTURER, Department of Finance

FACULTY OF BUSINESS STUDIES, PREMIER UNIVERSITY

SUBMITTED BY:

NAME: ABU BAKAR SIDDIKE

ID: 1803810109796

SECTION: “B”

SEMISTER: 3rd

DATE: 04-08-2020

 What is present value?

 ANS: Present value is nothing but how much future sum of money
worth today.

 What is future value?

ANS: Future value is the amount of money which will grow over a
period of time with simple of compound interest.

 Differences between present and future value:

Present value:
 Current value of future cash value

 Value of an asset at the beginning of the period.

 Involves both discount rate and interest rate.

 Discounted value of future sums of money.

FUTURE VALUE:

 Value of future cash flow after a specific future period.

 Value of an asset at the period that is being considered.

 Involves interest rate only.

 Nominal value of future sums of money.

Differences Between Compounding and Discounting

 What is Compounding?

ANS: The method uses to know the future value of a present

amount is known as compounding.

 What is Discounting?

ANS: The process of determining the present value of the amount to

be received in the future is known as discounting.

 Differences between Compounding and Discounting:

Compounding:

 Process of calculating the future value of a present

investment.
 Compound interest rate.
 Formula of compounding, A=P(1+r/n) nt
 Used to determine the amount of earnings to be gained
by making investment.

Discounting:

 Process of calculate the PV of future cash flow.

  Follow discount rate
 Formula of discounting, Dr= 1/ (1+r)
 Determine how much should be invested to make
maximum returns of future.

Impact of Covid-19 on Financial Market!!!

Soon after the WHO declared the Novel Coronavirus outbreak a
pandemic, a sudden pandemonium broke loose across the globe. The
coronavirus outbreak has impacted both financial markets and
consumer sentiments and with the ongoing liquidity concerns and
lockdown situations it seems there’s more trouble brewing for financial
institutions.The rapid geographical expansion of the covid-19 and the
high contamination rates nearly 1.3 crore infection in approximately
200 countries by june , have spread fear around the planet and
disrupted global economic activity.Investors have naturally been
concerned trillions of US dollars of losses in a single week (ending
February 28) in what was the market’s worst week since the financial
crisis of 2008.On March 2, mainly due to declarations of stimulus
measures by central banks, some markets rebounded and erases part
of the previous week’s losses. However, the following day, they were
hit by new losses, which indicates a clear instability.Unfortunately, the
biggest fears are ahead, particularly concerning global economic
growth. The OECD has warned that an escalation of the outbreak could
cut global GDP growth to 1.5%, half the current projected increase of
2.9% ,and send some economics into recession.

The procedure used to amortize a loan into a series

of equal periodic payments.

Amortizing a loan into equal annual payments involves finding the

future payments whose present value at the loan interest rate just
equals the amount of initial principal borrowed. The interest on an
amortized loan is calculated based on the most recent ending balance
of the loan, the interest amount owed decreases as payments are
made. This is because any payment in excess of the interest amount
reduces the principal, which in turn, reduces the balance on which the
interest is calculated. As the interest portion of an amortized loan
decreases, the principal portion of the payment increases. Therefore,
interest and principal have an inverse relationship within the payments
over the life of the amortized loan.

How can you determine the unknown number of periodic

when you know the present and future values-single or
annuity amount and the applicable rate of interest?
ANS: To find the number of periods it would take to compound a
known present amount into a known future amount we can solve
either the present value or future value equation for the interest factor
as shown below using the present value. Then substitute the values for
PV and FV into the formula.Using the PVIF table for the known interest
rate find the number of periods most closely associated with the
resulting PVIF.

The same approach would be used for finding the number of periods
for an annuity except that the annuity factor and the PVIF (or FVIFA)
table would be used.
 MATHMATICAL PART
4. You are thinking about buying a car, and local bank is willing to lend
you tk20000 to buy car. Under the terms of the loan, it will be fully
amortized over 5 years (60 months), and the nominal rate of interest
will be 12%, with interest paid monthly. What would be the monthly
payment of the loan? What would be the EAR interest rate?
5. J&J wishes to accumulate tk8000 by the end of 5 years by making
equal, annual, end of the year deposits over the next 5 years. If J&J can
earn 7% on her investments, how much the deposits at the end of the
each year to meet this goal?
THANK YOU MAM & SORRY FOR LATE SUBMISSION