Topic for Discussion: “Present Value and Discounting?”
Few days ago, the State Bank of Pakistan (SBP) has raised interest rate up to 9.5 percent from 9.0 percent, in line with requirements set by the International Monetary Fund. This increase was in a need to curtail rising inflation by tightening the flow of liquidity through higher interest rate. You were planning to purchase an insurance policy. What will be the effect of this rise in interest rate on:
a) Present value of insurance policy
b) Future value of insurance policy
we need to invest more for the specific future return on low interest rate but on high interest rate we can get same profit or return by investing less today. so our present value is decreased and future value will be increased.
please clear your concepts. present value is the ammount that will be equivalent in future. ie today 100 rupees are more than 110. but as compared 110 after 2 years 110 will be less than the value of 100 today.present value is comparison of present amount in the future according to interest rate.
in GDB, The increase was in a need to limit the rising inflation(mehngai) by tightening the flow of liquidity through higher interest rate. if inflation is restrained then present value will decrease.
As the interest rate will increase
present value of insurance policy will also increase.
future value of insurance policy will Decrease
ap dono ya tu batayo ka formula kon sa use kar ka ya ans la raha ho yar
ya baat theak lag rahe hai muje to keau log phir asy insurance karna kaam kar dain gaye mean loan lana b ho sakta hai ??? abi tak samag nae a raha :(
oye suno ya theak bo
adnangul see the lec no 6 page 30
Present Value = Future Value/(1+Interest rate)
and formula ma jo n year ha wo kaha chora ha wo b tu haya ga na tab tu solve ho ga na theak
when interest rate increases present value decreases and future value increases so simple gdb nothing confusing in it .
we have not needto culculate it in math format
ARZOO with high interest rate how the future value of insurance policy decrease ??????? prove it with reason... according to my understanding when the interest rate increases all investments gain more future values. for example. you have deposited 100 rupees in band for 10 years with 10% interest per year. after 10 years you will have 200 rupees. but if the interest is increased to 20% then after 10 years you have 300 rupees in the bank.