Welcome

to Presentation on

FINANACIAL MANAGEMENT

PRESENTED BY:
Mohammad Zahirul Islam
ID. No: 5197-2007
MPB 7TH Batch, July-Dec’2020 Semester
Department of Banking & Insurance
University of Dhaka
1. (a) What do you understand by the time value
of money?
 Time Value of Money: The time value of money is the value of
certain amount of money as on today, is worth than that amount of
money after one year later or future date.
 One of the most fundamental concepts in finance
 The time value of money is also related to the concepts of inflation and
purchasing power
 Time Value of Money Formula: A specific formula can be used for calculating
the future value of money so that it can be compared to the present value:
FV = PV x [ 1+ ( i /n)](n x t)
FV = the future value of money
PV = the present value
i = the interest rate or other return that can be earned on the money
t = the number of years to take into consideration
n = the number of compounding periods of interest per year
 
Distinguish between the present value and the future
value

Present Value Future Value

Current value of cash flow in future. Value of future flow after certain future
period

Current value of an asset Value of an asset or an investment at

the end of a particular time period.
Inflation is considered Inflation is not considered

Discount rate and interest rate are Only interest rates are considered
considered.

Helps investors in decision making. Least considered by investors

Present value = (cash flow)/ (1 + r)^n. Future value = (present value) or (cash
flow) x (1 + r)^n
How is the present value of future inflow
calculated?
The formula for finding the present value of future cash flows

(PV) = C x [(1 - (1+i)^-n)/i]

where C = the cash flow each period,

i = the interest rate, and
n = number of payments.

This is the short cut to the long-hand version.

 
1. (b)
IFIC Bank Ltd. has agreed to sanction a short term loan amounting Tk.
2, 00,000 to ABC company at 16% nominal interest rate for 1 year.
Calculate the effective rate of interest if the rate of interest is calculated on
a. Collect Basis, b. Discount Basis and, c. Monthly installment Basis
Solution:
(a)Collective Basis: EIR = (I/p x 360/DM) x 100
= (32000/200000 x 360/360) x 100
= 16%
(b) Discount Basis: EIR = [1/(p – I)] x 100
= [1/(200000 - 32000)] x 100
= 19.04%
(c) Monthly installment Basis: EIR = [(1 + i/m)m – 1] x 100
= [(1 + 0.16/12)^12 – 1] x 100
= 17.22%
Thank You All