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MGT201 Financial Management Graded Discussion Board (GDB) NO.1 Solution and Discussion Fall 2013 Due Date: November 22, 2013

Topic for Discussion: “Present Value and Discounting?”

GDB Question:

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

Important Instructions:

  • Your discussion comments must be based on logical facts.
  • Your comments should be brief and to-the-pointAvoid unnecessary details.
  • Your discussion should not exceed 120 words
  • The GDB will open and close on above specified date and time. Please note that no grace day or extra time will be given for posting comments on GDB.
  • Use the font style “Times New Roman” and font size “12”.
  • Your answer should be relevant to the topic i.e. clear and concise.
  • Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.
  • Books, websites and other reading material may be consulted before posting your comments; but copying or reproducing the text from books, websites and other reading materials is strictly prohibited. Such comments will be marked as Zero (0) even if you provide references.
  • You must post your answer on the Graded Discussion Board (GDB), not on the Moderated Discussion Board (MDB). Both will run parallel to each other during the time specified above. Therefore, due care will be needed.
  • Obnoxious or ignoble answer should be strictly avoided.
  • You cannot participate in the discussion after the due date via email.
  • Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB is over.

Views: 5326

Replies to This Discussion

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.

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