Present Value of Money (PV) :
Time and money value is internally related with each other. It is very important to take into consideration time factor when investing any amount. Present value of money, helps the investor to chose the project and compare with other options which gives more return from the investment.
Present value of money which indicate the todays money value of future amount.
For example: If you lend 100 euro to some borrower who will give you 110 euro after 2 years. Now you can calculate this 110 euros todays value.
Formula to find out the present value of money:
PV = FV*(1+ i )^-n
or
PV = FV / (1+ i)^n
or
we can use present value table
where, PV = Present value
FV = Future Vaule
i = Interest rate
n = no of year
Example:
100 euro is giving 110 euro after 2 years
where bank Interest rate is 6% . chose which project is profitable?
PV = 110 * (1+ 6%)^-2
PV = 97.89
This calculation shows that according to bank interest rate you are losing money. 110 euro is valuated 97.89 euro in present. So, the investor should invest the amount in the bank.
See the video to get more concept about present value of money (PV)
http://www.youtube.com/watch?v=zR3L5mLTi7s
Finance
Investments
Thursday, March 31, 2011
Tuesday, March 22, 2011
Micro-finance and Micro-credit....
In 1860, social reformer Friedrich Wilhelm Raiffeisen invented microloan. The microloan idea has returned to Europe, since the early nineties, entrepreneurs starting up a business have been awarded such loans in France and the Netherlands and since 2005, such loan also available in Germany. The central coordinating institution is the German Micro finance institution (DMI). It certifies and coaches regional organization s that offer microloans. The microfinance do not awarded any loan themselves, however, they check the loan application and if their assessment is positive. They forward it to a bank that award microloans. The financer and the state share the liability risk. (iReport, posted by Fancybear,cnn.com,06.01.11)
Microfinance is essentially a very simple concept. The idea is to take small amount of money and loan this money to someone who otherwise couldn’t get a loan so the person can start a business. This simple concept is being employed broadly right now, all around the world (us based summit campaign,1997, www.cgap.org/p/site/c (Published in international journal of Legal Information)
The word “microcredit” refers specifically to the giving of small (micro) loans (credit) to clients while the term “Microfinance” is broader and in compasses loans , savings, Insurance, leasing and other financial services. Since most microcredit program has grown in scope and most provider of microcredit also offer their clients access to other financial services, this paper will generally use the term “MFI” to describe initiative that involve microcredit and microfinance , except when commentary is specific to “microcredit” program only, or where “microcredit” has a meaning separate from “microfinance” (Muhammad yunus,2006)
Nobel peace prize in 2006, Muhammad yunus says “Microfinance and Microcredit programs can literally end world poverty” (in the Book By Muhammad yunus ,Creating the world without poverty,2007, page 237-248)
Sunday, March 13, 2011
Does Micor-finance Really help the Poor? (case in Bangladesh)
A comment written by me in Prothom-alo (1) Bangladesh News paper,13th march 2011) I don't want to go the politics conflict ( who can eliminate the poverty from Bangladesh?? and who cannot) I would like to mention some points about Micro-finance which are following the methodology invented by Dr.younus (vision of Micor-finance,Md.waliul Baten,Copenhagen Business School (CBS)21.10.2009):
1. Micro-finance is update from micro-credit which involves insurance, savings and other facilities.
2. Only 7% of micro-finance able to rise above the poverty line (Dr.Quazi kholiquzzaman Ahamad,2006-2007)BBC News,27.01.11
3. More than 1,200 Micro-finance institutions whose interest rates vary from 20 percent to 51 percent, according to the MRA.(Bangladesh caps, 10.11.2010)
4. Apart from prostitution, Arms and Drugs is there any legal Business in this country (Bangladesh) that will give you profit at the rate of 21% (20.4)?(Award for trading dead- body, www.ali-mahmed.com,23.04.10)
5. Finance Minister AMA Muhit alleged that micro-finance institution could not help poverty alleviation. (Muhit unhappy over hight Micro-credit rates,BDnews 24.com,15.10.2.10)
6.Micro-credit 'death trap' for Bangladesh's poor.(BBC NEWS,03.11.2010)
7.Nobel -winning Micro-credit bank comes under scrutiny.(CNN.com,01.14.2011)
In my opinion Micro-finance could be helpful for the poor if we can reconstruct the Methodology of credit lending and repay the loan system(which means,consider the flexible time to borrowers, effective use of borrowed money) .High interest rate vary from different borrowers to borrowers. I feel this high interest rates has significant effect on the proper use of borrowed money. Before giving loan find it out, how they are going to use that money?give them(Borrower) time to use the money, not just give them money and take it back with interest.
Before writing this comment, i talked with 20 members of micro-credit borrowers who are taking loan from different Micro-finance institution. i asked them did they change their living standard? They couldn't give me a positive answer. Even they are taking loan from one MF institution to pay other MF institution (as they unable to pay the loan of previous MF institution)
Find it out from http://palash-schooloffinance.blogspot.com/
Link:
Friday, March 11, 2011
Finance
This is the chart of all Finance topics. hope that you will check out these topics and study for taking maximum advantage of finance education.
Source: http://accountingcollege.blogspot.com/2010/04/finance_24.html
Source: http://accountingcollege.blogspot.com/2010/04/finance_24.html
Thursday, March 10, 2011
Financial leverage
Financial leverage is hugely utilized in corporate finance. But today, we are simplifying it by providing example of a sole trade. We know that in sole trade all capital is of one person and his aim is to maximize it. With financial leverage he can do it.
Financial leverage is tool to use own capital with debt for doing business. Following is the example which will simplify this finance term.
Mr. A has own capital of Rs. 5,00,000 and he bought a machine with his Rs. 5,00,000. Mr. A is not using financial leverage because he is using his own money for trading.
Mr. B has own capital of Rs. 5,00,000 and he took the loan of Rs. 10,00,000 @ 5% fixed interest. Now, he has Rs. 1500000 and he bought top quality machine with this Rs. 15,00,000.
If the machines owned by Mr A and Mr. B increase in value by 10% and are then sold, Mr. A will have a Rs. 50,000 profit on his own capital Rs. 500,000, a 10% return. Mr. A’s land will sell for Rs. 16,50,000 and will result in a gain of Rs. 150,000.
Now if we calculate the Mr. B's return on his own capital, it will be very high.
Mr. B's Return on his own capital = Rs. 150000/ Rs. 500000 X 100 = 30%
Suppose, if B has to pay interest of 5% on debt, then he will gain net = Rs. 150000 - 50,000 = 1,00,000
which will be the 20% of his own capital. Mr. A who is not using financial leverage, is gaining just 10% return.
Suppose if machine's value will increase by 20% and sell, then Mr. B's Return on his own capital after deducting 5% fixed interest, will be = Rs. 300,000 profit from sale of machine - Rs. 50000 interest
= Rs. 250000
Or = 250000/500000 X 100 = 50% which is 30% more than Mr. A's profit.
It means when assets inflate in value financial leverage works well. But when assets decline in value the use of leverage works against you.
Source:http://www.svtuition.org/2011/03/financial-leverage-simplified.html
Financial leverage is tool to use own capital with debt for doing business. Following is the example which will simplify this finance term.
Mr. A has own capital of Rs. 5,00,000 and he bought a machine with his Rs. 5,00,000. Mr. A is not using financial leverage because he is using his own money for trading.
Mr. B has own capital of Rs. 5,00,000 and he took the loan of Rs. 10,00,000 @ 5% fixed interest. Now, he has Rs. 1500000 and he bought top quality machine with this Rs. 15,00,000.
If the machines owned by Mr A and Mr. B increase in value by 10% and are then sold, Mr. A will have a Rs. 50,000 profit on his own capital Rs. 500,000, a 10% return. Mr. A’s land will sell for Rs. 16,50,000 and will result in a gain of Rs. 150,000.
Now if we calculate the Mr. B's return on his own capital, it will be very high.
Mr. B's Return on his own capital = Rs. 150000/ Rs. 500000 X 100 = 30%
Suppose, if B has to pay interest of 5% on debt, then he will gain net = Rs. 150000 - 50,000 = 1,00,000
which will be the 20% of his own capital. Mr. A who is not using financial leverage, is gaining just 10% return.
Suppose if machine's value will increase by 20% and sell, then Mr. B's Return on his own capital after deducting 5% fixed interest, will be = Rs. 300,000 profit from sale of machine - Rs. 50000 interest
= Rs. 250000
Or = 250000/500000 X 100 = 50% which is 30% more than Mr. A's profit.
It means when assets inflate in value financial leverage works well. But when assets decline in value the use of leverage works against you.
Source:http://www.svtuition.org/2011/03/financial-leverage-simplified.html
Wednesday, March 9, 2011
Finance career
Finance
Students of finance study the issues surrounding the monetary system in the US and other countries as well as personal and institutional investments and financial markets. A degree in finance might lead to a position as an investment banker, budget analyst, financial advisor, or money manager. As this field becomes more complex, demand for people with finance degrees is growing.
What you’ll study:
- Financial accounting
- Capital markets
- Investments
- Risk management
- Corporate finance
- International finance
Where you’ll work:
- Consulting firms
- Accounting firms
- Brokerage houses
- Investment banks
- Finance departments of corporations
- Private financial planning firms
First day of school of finance
From long time i was looking for create a blog . Dreams comes true.09th March 2011 is the first day of school of finance . My blog specially for the scholar.
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