Finance Numericals

Time Value of Money:   It is a concept that the value of money in our hand is more valuable today than the value we will receive in future. It is basically shows the effect of time on money value .For example if you lend Rs. 200, 000 to someone and the borrower has given two option to you that 1 st   he can pay you today , 2 nd   he will pay you after 5 years. In that case you prefer 1 st   option because there is no risk of default in payment of money and you can earn interest on that value if you invested somewhere and also there is no loss of purchasing power. With the help of time value of money we can take some decisions like investment, loan or lease. We can analyse which future investment option is best for today.   Present Value:   The current worth of future sum of money. It is also called present discounted value, higher the discounted values lower the present value. Future Value:   The value of money received at a specified date in future which is equivalent to t

The interest rate is calculated after considering the inflation rate, risk on that investment etc. There are two types of interest:- Simple interest Compound interest 1.  Simple interest is that interest which is earn on principal (borrowed) amount. It is calculated on original amount invested or borrowed for specified period. Formula to calculate simple interest (SI) is as follow:                  SI=P*R*T  Where, P=the principal amount which is borrowed or invested. R=the rate of interest which is charged on principal amount borrowed or invested. T=the time period for which principal amount borrowed or invested. For example - If a bank charge 5% p.a interest on Rs 20,000 for 5 ½ year. Then simple interest is calculated as: SI=P*R*T SI = 20000*5         (5+6)                ----------   *    ------                 100            12                =500*11   = 5500 With the help of it you can calculate interest          on loan, inte