Title Unit 2.docx ✅

Unit 2 Theories of Financial System Time Value of Money: Present and Future Value (Lump sum amount, Annuity and Perpetuity, Discount Rate (factor), Net Present Value (NPV) Leverage Ratio, Efficient Market Hypothesis, Modigliani-Miller Theorem. Important Questions: 1.Explain the equilibrium price of financial assets on the basis of Fama’s EMH. (2016) 2. a. If an investment of 30000 is made today for 3 years at 12 percent interest rate per year and providing interest semi-annually, compute lump-sum future value of investment. b. Calculate the present value of an annuity stream if someone pays Rs.9000 at the last day of each year for 4 years at 7% interest rate. (2016) 3.Mr. Jha is going to continuously deposit Rs.20000 on last day of every six month(semi-annually) for 3 years at 8 percent discount rate. What is the present value of investment? (pre-board 2074, TU) 4. a. What is the lump-sum present value of Rs.150000 after 4 years at 5.5% interest rate payable annually? b. NIC-Asia bank is receiving a regular cash flow of Rs. 35000 in the beginning of every six months for 2 years at 8 % interest rate, Calculate future value. (2018)
5.If a regular payment of Rs.12000 in every six months in beginning of each time interval for 4 years at 6% discount rate payable semi-annually, calculate future value of payments? (2019) 6. a. If a GIME bank is paying back Rs.25000 to depositors after 3 years at 5% discount rate payable semi-annually, find out the present value. b. If there is an annual cash flow of Rs.30000 that continues infinitely with 5% discount rate and it is expected to grow at 3.5% per year, what is the present value of cash flows? (2020 pre-board TU) Time Value of Money Time Value of Money: Any return of finance receiving today (at present) is more value (worth) than receiving in the future. Because, the received return today can also be refinanced / reinvested for additional income generation that makes cumulative effects on given stream of cash flows in the future.  Time Value of Money means the value of return receiving today (at present) from any given finance / investment and receiving in the future. The principle of compounding differentiates the time value of money from the concept of simple interest.