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    Time Value of Money: Hirearchy / Organogram

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    Muhammad Areeb
    1) The balance sheet shows total assets of $100 equal to total claims (liabilities + equity) of $100. Assets include debt, shares, and equity of $60. 2) There will be a quiz today after class and the tomorrow's class has been rescheduled to Sunday from 2-5 pm. 3) The document discusses key concepts related to time value of money including interest rates, inflation rates, discount rates, opportunity cost rates and provides examples to illustrate compounding, discounting and net present value calculations.

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    Time Value of Money: Hirearchy / Organogram

    Uploaded by

    Muhammad Areeb
    12 views7 pages
    1) The balance sheet shows total assets of $100 equal to total claims (liabilities + equity) of $100. Assets include debt, shares, and equity of $60. 2) There will be a quiz today after class and the tomorrow's class has been rescheduled to Sunday from 2-5 pm. 3) The document discusses key concepts related to time value of money including interest rates, inflation rates, discount rates, opportunity cost rates and provides examples to illustrate compounding, discounting and net present value calculations.

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    5-8-22

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    1) The balance sheet shows total assets of $100 equal to total claims (liabilities + equity) of $100. Assets include debt, shares, and equity of $60. 2) There will be a quiz today after class and the tomorrow's class has been rescheduled to Sunday from 2-5 pm. 3) The document discusses key concepts related to time value of money including interest rates, inflation rates, discount rates, opportunity cost rates and provides examples to illustrate compounding, discounting and net present value calculations.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    12 views7 pages

    Time Value of Money: Hirearchy / Organogram

    Uploaded by

    Muhammad Areeb
    1) The balance sheet shows total assets of $100 equal to total claims (liabilities + equity) of $100. Assets include debt, shares, and equity of $60. 2) There will be a quiz today after class and the tomorrow's class has been rescheduled to Sunday from 2-5 pm. 3) The document discusses key concepts related to time value of money including interest rates, inflation rates, discount rates, opportunity cost rates and provides examples to illustrate compounding, discounting and net present value calculations.

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    Balance Sheet

    Assets 100 Liabilities 40


    Debt

    Shares or owners
    Equity 60
    Total assets 100 Total Claims 100

    Two things to discuss


    Quiz today after the class.
    Final Quiz _ Day and time Wednesday at 10 pm
    Tomorrows class time _ Rescheduling Sunday at 2 pm to 5 pm

    Hirearchy / organogram
    Shareholders

    Board of Directors
    Prayer break for 20 mi
    CEO / MD

    GMS / Directors MOA


    AOA

    Managers

    Lower staff

    MOA

    What TIME VALUE OF MONEY


    Why It is a backbone of finance
    How

    Interest rates PIZZA


    Inflation rates PIZZA
    Discount rates
    Opportunity cost rates

    Today Rs.100

    Example 1: If your friend asks you for a loan of 10,000 today.


    and pays you back Rs.10,000 after two years.
    Any change? Does it matter?
    Time Lines

    Period 0-----------1--------------2-----------3-------------4-----
    PV
    5/8/2022
    Example 2:
    An investor is offering you Rs.140,000 after five years and the bank can give you Rs.150,000 after the same time.
    What should be your decision? Opportunity cost rates concept

    Example 3: A security is giving a return of 8% on your investment, and another security is offering 9%.
    What is the Opp. Cost of first security A? A B

    Example 4: Lottery Rs.2 million


    Option 1 Option 2
    2 million right Rs.250,000
    every year for
    the next ten years
    2,000,000 2,500,000

    Question 1:
    Taking an examnple 1. Now if the interest rate is 11%, how much money your friend should give you back?
    .i = 11%
    Basic Formula: FV= PV(1 + i)n 0------1---------------2-------------3
    10,000 ?
    PV FV
    n = 2 years

    Question 2:
    If you invest in aproject Rs.40,000 today, and it gives you back Rs. 52,000 after 5 years. Having an opportunity cost of 6%. Wha

    PV = FV / (1 + I )n PV = 52,000 / (1..06)5 .= Rs.38,000

    0----------1---------------2---------------3----------------4--------------------5
    ?
    Interest rate is always considered as annual/yearly 38,000
    in economics, stats , maths or accounting.
    100*5% = 5 + 100 = 105 * 5% = 5.25 + 105 = 110.25 * 5% = 5.512 + 11

    Question 3:
    You have won a lottery in a game and he promises to pay you Rs. 300,000 after four years. If the discount rate is 11%. How mu
    You can also avail it by taking just Rs.200,000 today. What should you do?
    FV = 300,000 FV = PV(1+i)n
    PV = ?
    n= 4 years PV = FV 300,000 .=Rs.197,628
    I = 11% (1 + i)n (1.11)4 Decision = We should take Rs.200,000 now at present, inst

    Question 4: An investment offers you Rs. 13,000 after 3 three years, if the discount rate is 7%. How much should you invest?

    Answer: Rs.10,611 This is the maximum at present.

    Question 5: a. If a scheme doubles your money after 2 years, How much rate of return it is providing you?
    b. And if it is tripled.

    FV = 200 A FV = PV (1 + I )n B .i = 73% Question 6


    PV = 100
    .i = ? 200 = 100 (1 + .i )2
    n=2
    200/100 = (1 + i)2

    (2)1/2 = 1 + i

    1.41 = 1 + i

    .i = 1.41 - 1

    .= .41 or 41%

    Question 7: If you invest in a bank account that gives 12% semi-annual interest rate. How much will you accumulate at the en
    Rs.23,000 are deposited?
    .i = 6%
    PV = 23,000 0-------------1-------------2----------------3------------------4
    FV = ? n=4
    .i = 6% or 12% /2
    n=4 Rs. 29,036

    Question 8: Suppose if Rs.100 is deposited at the end of every year for a period of 5 years at interest rate of 10%. What will be

    ANNUITIES: Equal level streams of cash flows for definite period.


    Perpetuity: Equal level streams of cash flows for an indefinite period.

    Pension
    Forms of Business organization
    (1) Sole Proprietorship Merits Demerits
    Easy to start Less capital
    Less capital Unlimited liability
    less legal formalities High risk
    less dependncy less continuity / limited life
    less conflicts Less vision
    Less tax formalities less expansion

    (2) Partnership In Pakistan there is Partnership Act 1932 Incase of a Trading concern, there can be
    Easy to start Unlimited liability Incase of a banking concern, there can be
    Less Legal formalities Conflicts
    Division of risks Lack of control

    (3) Joint Stock Company In Pakistan it comes under Co.'s Act 2017.
    Shareholders are owners of the firm. They can cast a vote.
    A company can sue and can be sued
    It is an artificial being.
    There are many legal formalities to form a company.

    Prayer break for 20 minutes. To start at 7:45.


    Private limited Public limited
    Shareholders Max 50 Infinite
    Directors Min 3 Min 7
    Annual external Audit Not mandatory Mandatory
    CoCB Not mandatory Mandatory
    MOA & AOA Not mandatory Mandatory

    VALUE OF MONEY
    kbone of finance Security valuation
    Bond Valuation
    Capital Budgeting
    etc.
    PIZZA

    After a year Rs.130


    Compounding

    1--------------2-----------3-------------4------------5-------------6
    FV 5/8/28
    Discounting

    000 after the same time.

    is offering 9%.

    uld give you back?

    FV = 10,000(1+ 0.11)2

    FV = Rs.12,321.

    Having an opportunity cost of 6%. What is your decision?

    ----3----------------4--------------------5
    52,000

    5.25 + 105 = 110.25 * 5% = 5.512 + 110.25 = 115.76

    rs. If the discount rate is 11%. How much this lottery is worth today?
    d take Rs.200,000 now at present, instead of having Rs.300,000 after 4 years.

    is 7%. How much should you invest?

    t is providing you?

    If you invest Rs.22,000 today, how long will it take to get Rs.30,000.
    If the interest factor today is 9%?

    30,000 = 22,000 (1+09)n

    30,000 / 22,000 = 1.09n


    ln1.36 = n ln 1.09

    0.307 = n 0.08

    n = 0.307 / 0.08

    n = 3.8 years

    w much will you accumulate at the end of the second year, if

    rs at interest rate of 10%. What will be the totl amount at the end?

    Ordinary: At the end of any period.


    Due At the start of any period.
    a Trading concern, there can be 20 partners.
    a banking concern, there can be 10 partners.

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