FINAL

PROJECT INTRODUCTION TO
BUSINESS FINANACE

BS ACCOUNTING & FINANCE

SEMESETER 2
SECTION {A}

GROUP MEMBERS:
HAISAM ABBAS [AF1211]
ZAIN KHALID MALIK [AF1217]
Question 1
DEFINE FINANCAL MANAGEMENT?
Financial management is a vital activity in any organization. It is the process of planning,
organizing, controlling and monitoring financial resources with a view to achieve organizational
goals and objectives. It is an ideal practice for controlling the financial activities of an
organization, for example, acquisition of assets, utilization of assets, accounting, payment, risk
assessment and each other thing related to cash.

Question 2
DEFINE TIME VALUE OF MONEY?

The time estimation of cash {TVM} is the idea that cash you have now is worth more than the
indistinguishable, whole later on because of its latent capacity gaining limit. This center rule of
fund holds that gave cash can gain premium, any measure of cash is worth more the sooner it is
held TVM is additionally in some cases alluded to as present markdown esteem.

UNDERSTANDING THE CONCEPT OF TIME VALUE MONEY

The time estimation of cash draw from the possibility that conventional speculators wants to get
cash today instead of some measure of cash later on due to cash potential to develop in an
incentive over a given timeframe.

Question 3
EXPLAIN THE CONCEPT OF COMPOUNDING AND DISCOUNTING?
For understanding the idea of exacerbating. As a matter of first importance, you have to think
about the term future worth. The cash you contribute today, will develop win enthusiasm on it,
after a specific period, which will naturally change its incentive in future so the value of the
interest in future is known as its future worth.

Intensifying alludes to the way toward procuring enthusiasm on both the chief sum, just as
accumulated enthusiasm by reinvesting the whole add up to produce more premium.
Aggravating is the strategy utilized in discovering the future estimation of the current venture.
The future worth can be registered by applying the self-multiplying dividends of the equation.

Definition of discounting?
Limiting is a procedure of changing over future sum into its current worth. The current
estimation of the given future worth is known by the current worth. The limited strategy needs to
find out the current estimation of future incomes by applying the rebate rate .
Difference between discounting and compounding?
The strategy uses to know the future estimation of a current sum is known as intensifying. The
way toward deciding the current estimation of the sum to be gotten in future is known as
limiting.

Exacerbating utilizations progressive accrual rates while markdown rates are utilized in limiting.

In the event that we contribute a specific total today, limiting of future total remains what should
we have to contribute today to get a confirmed sum tomorrow.

The future estimation of factor table is alluded to figure the future incentive if there should arise
an occurrence of exacerbating. On the other hand in limiting present worth can be processed with
the assistance of present estimation of factor table.

In exacerbating present worth sum is now determined. Then again, the future worth is the given
on account of limiting.

Question
Discuss how annuities can help financial managers and elaborate different
types of financial markets.
Annuities are commonly sold by an insurance agency which ensures the installments. This
assurance is the reason it's viewed as part protection contract. Hereinafter we will allude to "the
executive’s organizations," be that as it may, as certain annuities are sold by monetary
administration firms too.

The particular structure of an annuity can differ. Financial specialists can pick items which have
annuitization over a fixed term of years or which append to explicit life occasions, (for example,
retirement or passing). They can even decide to get their installment as a single amount. The
subtleties of each agreement rely upon the particular item.
Mr. Malik Khalid has approached you for some saving plans for his future needs. Mr. Khalid has age of

30 years and doing job in Shall Pakistan. Mr. Khalid has only one son Aryan, which has recently joined

school in play group. Mr. Khalid wants to get following plans:

 1. The educational plan for medical education (MBBS) education of his child

PV = 4750,000, I = 7.5% (0.07), n= 16

Formula: FV = PV [1+i] n

FV = 4750,000 [1+ 0.075]16

FV= 4750,000 [1.075]16

FV = 4750, 000[3.1807]

FV = 15108325

Now putting the value of FV in annuity.

Assuming i = 12.5% (0.125)

Formula: FV =R [(1+i) n-1/i]

15108325=R [(1+0.125)16 – 1 / 0.125]

15108325=R [5.5832 /0.125]

15108325=R [44.6656]

15108325/44.6656= R

R= 338254. 1598

Firstly, we started with educational plan. Mr. Khalid’s son is in playgroup. He is four years old.

He will be 18 years old when he starts his MBBS. We supposed 4750,000 for his MBBS Fee. First
of all, we will evaluate the present value of this scenario. We are evaluating this value because

inflation rate effects this. Inflation rate that we have supposed is, 7.5%. Now we have found the

present value and we also found inflation rate. We supposed 12.5% of interest rate, now

Interest rate is already known. After 14 years we will find the present value of this future value.

We have found the future value which is 15108325. Now we will find the value of FV in annuity.

We will put value 15108325 in annuity. Now we will put the interest that the company will

allow us and that is 12.5%. We have supposed value of N to be 16. Now we have to find the

value of R. For that we will apply the annuity formula to find R. The value of R that we have

found is, 338254. 1598.

After all this process, we have found the following conclusion,

The value that we annually pay after paying the interest is 338254. 1598.
 2. Saving plan for marriage of his son

Now his son in playgroup so his estimated age is 4 years. Mr. Malik Khalid wants his an insurance for his

son wedding which he wants when his son will become 28 years old so estimated n is 24 years. Now

estimated expense on a wedding is 1370,000 now because of inflation rate we will calculate future value

of this amount by assuming inflation rate 11.5%.

n =24,

I = 11.5% (0.115)

PV = 1370,000

FV =?

Formula: FV =PV (1+i) n

FV= 1370,000 (1.115) 24

FV= 1370,000 (13.6331)

FV= 18677347

Now Consider this FV as FVA

Assuming I = 11.5%

Formula: FVA =R [(1+i) n-1/i]

18677347 = R [(1.115)24-1/0.115]

18677347 = R [(12.6331)/0.115]

18677347 = R [109.8530]

18677347/109.8530 = R
 R = 170021.27

For marriage plan, we will use the above method.

Mr. Malik Khalid pay 170021.27 every year up to 24 year in order to gain 18677347 for his son’s wedding

with an interest rate of 11.5%. We supposed 1370,000 for his marriage expenses. First of all, we

will evaluate the present value of this scenario. We are evaluating this value because inflation

rate effects this. Inflation rate that we have supposed is, 11.5%. Now we have found the

present value and we also found inflation rate. We supposed 11.5% of interest rate, now

Interest rate is already known. After 24 years we will find the present value of this future value.

We have found the future value which is 18677347. Now we will find the value of FV in annuity.

We will put value 18677347 in annuity. Now we will put the interest that the company will allow

us and that is 11.5%. We have supposed value of N to be 24. Now we have to find the value of

R. For that we will apply the annuity formula to find R. The value of R that we have found is,

170021.27.

After all this process, we have found the following conclusion,

The value that we annually pay after paying the interest is 170021.27.
3. A retirement plan after his retirement at the age of 60.

Mr. Malik Khalid

n= 20

PV= 3350,000

I = 9% (0.09)

R =?

Formula:

PVA= R [1-1/ (1+i) n]/0.09

3350,000 = R [1-1/ (1+0.09)20]/0.09

3350,000 = R [1-1/ (1.09)20]/0.09

3350,000 = R [1-1/ (5.6044)]/0.09

3350,000 = R[0.8215]/0.09

3350,000 = R (9.1277)

3350,000 / 9.1277= R

R = 367014.6915

In retirement plan we will use the present value annuity. The maximum life of Mr. Khalid that we

have supposed is 80 years. The present value is assumed by us and that is 3350,000. The atlas

insurance company has given the present value 3350,000. Although we can use monthly basis for

insurance but we have used annual value. We supposed 367014.6915 for his Retirement plan.
First of all, we will evaluate the future value of this scenario. Now we have found the future

value. We supposed 9% of interest rate, now Interest rate is already known. After 20 years

we will find the future value of this present value. We have found the future value which is

367014.6915. For this purpose we will find the value of PV in annuity. We will put value

3350,000 in annuity. Now we will put the interest that the company will allow us and that is

9%. We have supposed value of N to be 20. Now we have to find the value of R. For that we

will apply the annuity formula to find R. The value of R that we have found is, 367014.6915.

Note: The reason for using 20 for value of N is because Mr. Khalid will retire in 60 years. He

started saving 30 years after starting his professional career. The future that we have found

after above process is 367104.6915. He will receive this value after every year.