Title Unit 2.docx ✅

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. 

Example If PV = Rs. 5000, r = 4% per year which is payable annually and t = 4 years, find lump sum FV?                                          F Vt = P V (1 + r/n) t×n                               or,     F V4 = 5000 (1 + 0.04 /1) 4×1     [as n = 1]     or,     F V4 = 5000 (1 + 0.04) 4              or,     F V4 = 5000 (1.04) 4        or,    F V4 = 5000 × 1.1699 = Rs. 5849.50/- But, if the return is offered / payable more than one time rather than annually, when n>1, the given formula is to be adjusted as FV t = PV [1 + r/2] t×2 in which return is payable Semi - annually (n=2) FV t = Rs. 5858.50/- ii) Lump Sum Present Value (PV):- It is the required present worth (value) that makes given future value (amount) with cash flow during the given time horizon on the basis of given interest (discount) rate. So, as the given interest (discount) rate increases, the present worth (value) with cash flow decreases that can be calculated with the help of given formula like:- PV = FV t [1 / (1 + r/n)] t×n    Where, PV = Present value,  FV = Future Value,  r = discount rate payable annually,  t = Time horizon.   n = frequency (number) of return offered per year.