Financial Management set-2 Page 3
An investor in a company‘s shares has two objectives for investing:
It is the ability of the company to give both these incomes to its shareholders that
determines the market price of the company‘s shares.
The most important goal of financial management is maximisation of net wealth of theshareholders. Therefore, management of every company should strive hard to ensurethat its shareholders enjoy both dividend income and capital gains as per theexpectation of the market.Financing decision involves the consideration of managerial control, flexibility andlegal aspects and regulatory and managerial elements
Q.2. What is the future value of an annuity and state the formulae for future value of an annuity?
The time preference for money is generally expressed by an interest rate, whichremains positive even in the absence of any risk. It is called the risk free rate.For example, if an individual
s time preference is 8%, it implies that he is willing toforego Rs. 100 today to receive Rs. 108 after a period of one year. Thus he considersRs. 100 and Rs. 108 as equivalent in value. In reality though this is not the only factorhe considers. He requires another rate for compensating him for the amount of riskinvolved in such an investment. This risk is called the risk premium.