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MGT411 GDB No 01 Fall 2020 Solution / Discussion Last Date: 27-11-2020

SEMESTER FALL 2020
Money and Banking (MGT411)
GDB No. 1
 
Due Date: November 27, 2020                                                                                                Marks: 5
 
Learning Objective:
The objective of this question is to enable the students to understand value of instruments and to know the factors that affect their value.
Discussion Question:
Financial instrument is a written legal obligation of one party to transfer something of value (usually money) to another party at some future date under specified conditions. These are used to transfer resources and risk. There are four fundamental characteristics that influence value of any financial instruments. Value of a financial instrument is affected by the conditions under which the payment is to be made. Payments that are more likely to be made are more valuable. Financial instruments carrying larger payments are more valuable and conditions under which payments are to be made also effect value of an instrument.
Four pairs of financial instruments are given below; you are required to select instrument of highest value from each by keeping in mind the features that effect value of financial instruments.
Note: Explain each of your selection with logic.
A  U.S. Treasury bill (T-bill) that pays $100 in 12 months or a U.S. T-bill that pays $100 in 6 months.
A U.S. T-bill that pays $100 in 6 months or commercial paper that pays $100 in 6 months issued by a private corporation.
A health insurance policy that pays out only in case of serious illness or the one that pays out for routine checkup even when you are healthy; assuming you are equally likely to be ill or healthy.
A financial instrument that pays $100 every month than the one that pays $1,000 every year.
 
Important Instructions:
Your discussion must be based on logical facts.
The GDB will remain open for 07 working days.
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.
Obnoxious or ignoble answer should be strictly avoided.
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.
For Detailed Instructions please read the GDB Announcement.

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#MGT411 GDB SOLUTION
Solution :
1. A U.S. Treasury bill (T-bill) that pays $100 in 12 months or a U.S. T-bill that pays $100 in 6 months.
Timing : payments that are made sooner are more valuable
Because U.S. T-bills that pays $100 in 6 months has higher value than other
2. A U.S. T-bill that pays $100 in 6 months or commercial paper that pays $100 in 6 months issued by a private corporation.
Circumstances : Payments that are made when we need them most are more valuable
Because commercial paper that pays $100 in 6 months issued by a private corporation has higher value than other
3. A health insurance policy that pays out only in case of serious illness or the one that pays out for routine checkup even when you are healthy; assuming you are equally likely to be ill or healthy.
Likelihood : Payments that are more likely to be made are more valuable
Because the one that pays out for routine checkup even when you are healthy, assuming you are equally likely to be ill or healthy has higher value than other.
4. A financial instrument that pays $100 every month than the one that pays $1,000 every year.
Size : Payments that are larger are more valuable
Because the one that pays $1000 every year has higher value than other.

MGT411 GDB Solution Fall 2020

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