BA-207

A PRESENTATION
ON TIME VALUE OF
MONEY,COMPOUNDING AND
DISCOUNTING,VALUATION OF
SECURITIES,RISK AND RETURN
TRADE OFF
PRESENTED BY – GROUP NO.- 3

GROUP MEMBERS-ABHISEK SINHA(52)

-DEEPAK DWIVEDI(53)
-SAURABH BAJAJ(54)
-SUDHANSHU SHEKHAR RAI(55)
-ABHISEK SINGH(56)
THE TIME VALUE OF MONEY
THE TIME VALUE OF MONEY
 The time value of money is the value
of money figuring in a given amount of
interest earned over a given amount of
time.
Another Definition…

The Time Value of Money is a relationship

between the Currency ( as. Rupee in India )
Value Today and in Future and is also called
as ‘ Future Value ’.
An Example…

100 Rupee of today's money invested for one year and

earning 5 percent interest will be worth 105 Rupee
after one year. Therefore, 100 Rupee paid now or 105
Rupee paid exactly one year from now both have the
same value to the recipient who assumes 5 percent
interest; using time value of money terminology, 100
Rupee invested for one year at 5 percent interest has a
future value of 105 Rupee.
I.e. ,Future Value = Present Value + Interest .
 COMPOUNDING AND DISCOUNTING
• Two ways to compare the cash flows at
different point of time
-convert the present cash flow into its
equivalent at a future date(compounding).
-cash flow occurring later can be
converted back to todays value(discounting).
 COMPOUNDING
To find the future value of money that is
available today
The earning of interest over interest is referred
to as compounding.

Formula used F=P*(1+r)n

Where F=future value
P=present value
r=annual rate of interest
n= no. of years
 EXAMPLE
PROBLEM – Mr. Krishna Kumar decides to
invest Rs.10000 in a three year term deposit
at 10% compounded annually-
a)What would be the future value of investment
at the end of each year?
b)Will your answer be different if the interest is
compounded half yearly?
 DISCOUNTING
Rate of return the person could receive by investing
this money elsewhere over the given period of time
covered.

Discount = P * (1+r%)t - P
Or
Discount = future value – Présent value
 COMPARISION OF FUTURE VALUE
AND PRESENT VALUE

1. Process of determining FV is compounding.

2. process of determining PV is discounting.

 Types of bonds

 Treasury bonds /govt. bonds

 Co-operative bonds
 Mortgage bonds
 Foraward mortgage bond
 Reverse mortgage bonds
 Debentures
 Convertible bonds
 Municipal bonds
 Foreign bonds
 TREASURY BONDS
This type of bonds are issued by
the govt.like nsc,kisan vikash patra.
 Co-operative bonds
This type of bonds are issued by co. banks.
 MORTGAGE BONDS
It is of two types :-
Forward mortgage:-contract between the
home owner and the financial instiution which
enables the home owner to receive a
continuous income from the future relisable
value of the home.
 Reverse mortgage
• A reverse mortgage is just opposite to the
forward mortgage which requires the payment
of the principle loan ammountalong with the
interest on monthly basis.
• In this the capital value of the house is
conveted into annuity over the home owners
life time.
 Debenture bonds
• A debt security, issued by a government or large
company, that is not secured by an asset or lien, but
rather by all of the issuer's assets that are not
otherwise secured. That is, a debenture carries no
collateral and is considered unsecured; in case of
bankruptcy, the debenture holder is considered a
general creditor. Debentures issued by governments
are considered risk-free.
 Convrtible bonds
• The value is conveted into equity as per given
time after a certain period of time ,if bond
holder exercise the option of conversion.
 Muncipal bonds

• The bonds which are issued by the muncipal

corporation,(nagar nigam) backed by the
government.
 Foreign bonds

• This type of bonds are issued by the

companies or financial institution of foreign
goverments in the foreign currencies.
 Charecteristics of the bonds.
• The par /face value

• Coupen rate

• Maturity date

• Call provision
 Valuation of bonds
• Standard coupon bearing bond i.e. readimeable :

• Ireadimeable bonds:

• Bonds with semi annual interest.

• Zero coupon bond