Subject :- Financial Management.

Topic :- Time value of Money and Bond Valuation.

Submit To :- Neha Jamalta Mam.
Submitted by :- Keshav Kumar Kashyap
MBA(2ND SEM.)
Enrollment No. 19001174
1. Discuss the concept of time value of money in detail with solved
numerical.
➢ The time value of money is an important concept to investors because a
rupee in hand today is worth more than a rupee promised in the future.
At the most basic level, the time value of money demonstrates
that, all things being equal, it is better to have money now rather than
later.
• The value of money is the first and one of most important lessons one
should learn in finance.
• The meaning of time value of money is that the worth of a rupee to be
received today is different from the worth of a rupee to be received in
future.
• This concept is important in capital budgeting decisions.
➢ MAJOR IMPORTANCE OF TIME VALUE OF MONEY.
❖ It is required for accounting accuracy for certain transactions such as
loan amortization, lease payments, and bond interest.
❖ It indicates the relationship between time and money.
❖ The single most important in all financial concepts.
❖ Money can ‘’make’’ money if INVESTED.
❖ The change in the amount of money over a given time period is called
TIME VALUE OF MONEY.
➢ NUMERICAL :-
For a third party, we are to find the annual rate of interest R required to
make $ 3,550 grow to $ 3,762.50 in 210 days(270-60). So we need to
find R given that.
Solution:-
A= $ 3,762.50, P= $ 3,550, T=210/360

A=P(1+rt)
 $ 3,762.50= $ 3,550[1+r(210/360)]
r= 0.10262 or 10.262%

2. Discus the concept of Bond valuation in detail with solved numerical.

➢ Bond valuation is a technique for determining the theoretical fair value of
a particular bond.
➢ Bond valuation includes calculating the present value of a bond’s future
interest payments, also known as its cash flow, and the bond’s value
upon maturity, also known as its face value or par value.
• Bond valuation is a way to determine the theoretical fair value (or par
value) of a particular bond.
• It involves calculating the present value of bond expected future
coupon payments, or cash flow, and the bond’s value upon maturity, or
face value.
• As a bond’s par value and interest payments are set, bond valuation
helps investors figure out what rate of return would make a bond
investment worth the cost.

➢ MAJOR IMPORTANCE OF BOND VALUATION.

❖ It involves calculating the present value of a bond’s.
❖ Bond valuation helps investors figure out what rate of return would make
a bond investment worth the cost.
❖ A bond is a debt instrument that provides a steady income stream to the
investor in the form of coupon payments.
❖ Some bonds have an interest rate, also known as the coupon rate, which
is paid to bondholders semi annually.
❖ All bonds have maturity dates, some short-term, others long term.
➢ NUMERICAL :-
What is the price of a 7.25% annual coupon bond, with a $ 1,000 face
value, which matures in 3 years .Assume a required return of 0.35%.
SOLUTION:-
PV= 72.50/(1.0035)1 +72.50/(1.0035)2 +1,072.50/(1.0035)3
PV = $ 1,205.56
3. Explain evolution of financial management in detail.
➢ Finance, as capital, was part of the economics discipline for a long time.
So, financial management until the beginning of the 20th century was not
considered as a separate entity and was very much a part of economics.
➢ In the 1920s, liquidity management and raising of capital assumed
importance. The book, FINANCIAL POLICY OF CORPORATIONS’ written by
Arthur stone Dewing in 1920 was a scholarly text on financing and
liquidity management, i.e., cash management and raising of capital in
1920s.
➢ Finance are the lifeline of any business. However, finances, like most
other resources, are always limited. On the other hand, wants are always
unlimited. Therefore, it is important for a business to manage its finances
efficiently. As an introduction to financial management, in this article, we
will look at the nature, scope, and significance of financial management,
along with financial decisions and planning.
➢ ‘’Financial management is the activity concerned with planning, raising,
controlling and administering of funds used in the business.’’
➢ ‘’Financial management is the operational activity of a business that is
responsible for obtaining and effectively utilizing the funds necessary for
efficient operations.’’
➢ For any business, it is important that the finance it procures is invested in
a manner that the returns from the investment are higher than the cost
of finance. In a nutshell, financial management.
• Endeavors to reduce the cost of finance.
• Ensures sufficient availability of funds
• Deals with the planning, organizing, and controlling of financial
activities like the procurement and utilization of funds.

SO WE CAN SAY THAT FINANCE IS IMPORTANT FOR EVERY TYPE OF

BUSINESS.