What is interest ? Types of interest & Rate of interest
various theory of interest
1) Classical theory
2) Loanable fund theory
their criticism and explaination
The presentation highlights some shortcut formulas that can speed up PV computations if a project have a particular set of cash flow patterns and the opportunity cost of capital is constant
GLOBAL REPURCUSSIONS OF FOREIGN TRADE MULTIPLIERHarsh Guna
This document discusses the concept of foreign trade multiplier and its global repercussions. It begins by introducing the original idea of the employment multiplier and how Keynes extended it to the investment multiplier. It then defines the foreign trade multiplier, also known as the export multiplier, which measures the increase in national income from a unit increase in exports. The multiplier is smaller in an open economy compared to a closed economy due to leakages from savings and imports. The document also discusses the concept of foreign repercussions, where a change in one country's income can impact another country's income through trade linkages in multiple rounds, dampening the initial change.
1) The Stackelberg model describes a sequential game where one firm (the leader) moves first by choosing its quantity, which the second firm (the follower) then observes before choosing its own quantity.
2) The leader produces more and earns higher profits than in the Cournot model because it can strategically influence the follower's response.
3) Total output is higher but deadweight loss is also higher under Stackelberg compared to Cournot.
Consumption and investment are the two components of aggregate demand in a simple two-sector macroeconomic model that assumes no government or foreign trade. Consumption is determined by disposable income and other factors, while savings is the portion of disposable income not consumed. The marginal propensity to consume measures how consumption changes with income, and is between 0 and 1. Determinants of consumption and savings include income, interest rates, prices, wealth, and demographic factors.
- A liquidity trap is a situation where the short-term nominal interest rate is zero, meaning that increasing the money supply has no effect on output or prices according to traditional Keynesian theory.
- Modern theory argues that monetary policy can still be effective even at zero interest rates by managing expectations about future money supply levels when interest rates rise above zero again.
- For monetary policy to be effective in a liquidity trap, central banks must commit to maintaining lower future interest rates once deflationary shocks subside in order to stimulate expectations about future money supply levels and interest rates.
This document discusses Phillip's curve and the natural rate of unemployment. It notes that in the short run, there is an inverse relationship between unemployment and inflation depicted by Phillip's curve. However, in the long run Phillip's curve becomes vertical as inflation increases due to rising expectations. The natural rate of unemployment (NAIRU) is the rate below which inflation rises, as workers demand higher wages. The document argues the NAIRU theory suggests governments should not try to lower unemployment through demand policies, as that would only cause inflation. However, the NAIRU concept is criticized for lacking empirical evidence and for being against Keynesian demand management.
This document discusses foreign exchange risk and exposure. It defines exposure as the sensitivity of a company's value to exchange rate changes, while risk refers to the variability of a firm's value due to uncertain exchange rate changes. Exposure is calculated using regression, while risk uses variance or standard deviation. The document outlines different types of exposures including transaction, translation, and operating exposures. It provides examples of how companies can manage transaction exposure through hedging techniques like forward contracts, options, and money market hedges. Finally, it briefly discusses the relationship between exposure and purchasing power parity.
What is interest ? Types of interest & Rate of interest
various theory of interest
1) Classical theory
2) Loanable fund theory
their criticism and explaination
The presentation highlights some shortcut formulas that can speed up PV computations if a project have a particular set of cash flow patterns and the opportunity cost of capital is constant
GLOBAL REPURCUSSIONS OF FOREIGN TRADE MULTIPLIERHarsh Guna
This document discusses the concept of foreign trade multiplier and its global repercussions. It begins by introducing the original idea of the employment multiplier and how Keynes extended it to the investment multiplier. It then defines the foreign trade multiplier, also known as the export multiplier, which measures the increase in national income from a unit increase in exports. The multiplier is smaller in an open economy compared to a closed economy due to leakages from savings and imports. The document also discusses the concept of foreign repercussions, where a change in one country's income can impact another country's income through trade linkages in multiple rounds, dampening the initial change.
1) The Stackelberg model describes a sequential game where one firm (the leader) moves first by choosing its quantity, which the second firm (the follower) then observes before choosing its own quantity.
2) The leader produces more and earns higher profits than in the Cournot model because it can strategically influence the follower's response.
3) Total output is higher but deadweight loss is also higher under Stackelberg compared to Cournot.
Consumption and investment are the two components of aggregate demand in a simple two-sector macroeconomic model that assumes no government or foreign trade. Consumption is determined by disposable income and other factors, while savings is the portion of disposable income not consumed. The marginal propensity to consume measures how consumption changes with income, and is between 0 and 1. Determinants of consumption and savings include income, interest rates, prices, wealth, and demographic factors.
- A liquidity trap is a situation where the short-term nominal interest rate is zero, meaning that increasing the money supply has no effect on output or prices according to traditional Keynesian theory.
- Modern theory argues that monetary policy can still be effective even at zero interest rates by managing expectations about future money supply levels when interest rates rise above zero again.
- For monetary policy to be effective in a liquidity trap, central banks must commit to maintaining lower future interest rates once deflationary shocks subside in order to stimulate expectations about future money supply levels and interest rates.
This document discusses Phillip's curve and the natural rate of unemployment. It notes that in the short run, there is an inverse relationship between unemployment and inflation depicted by Phillip's curve. However, in the long run Phillip's curve becomes vertical as inflation increases due to rising expectations. The natural rate of unemployment (NAIRU) is the rate below which inflation rises, as workers demand higher wages. The document argues the NAIRU theory suggests governments should not try to lower unemployment through demand policies, as that would only cause inflation. However, the NAIRU concept is criticized for lacking empirical evidence and for being against Keynesian demand management.
This document discusses foreign exchange risk and exposure. It defines exposure as the sensitivity of a company's value to exchange rate changes, while risk refers to the variability of a firm's value due to uncertain exchange rate changes. Exposure is calculated using regression, while risk uses variance or standard deviation. The document outlines different types of exposures including transaction, translation, and operating exposures. It provides examples of how companies can manage transaction exposure through hedging techniques like forward contracts, options, and money market hedges. Finally, it briefly discusses the relationship between exposure and purchasing power parity.
This document discusses interest rates, including their level, structure, and related issues. It defines interest rates as the cost of borrowing expressed as a percentage. Interest rates are determined by demand and supply of funds. The structure and level of interest rates depends on factors like the yield curve, maturity structure, and default risk. There are five components that make up interest rates: real risk-free rate, expected inflation, default risk premium, liquidity premium, and maturity premium. The document also discusses the relationship between interest rates and inflation.
1. The document discusses using the IS-LM model to analyze the effects of shocks, fiscal policy, and monetary policy. It provides examples of analyzing different policy changes using the IS-LM diagram.
2. It then discusses how the IS-LM model can be used to derive the aggregate demand curve and analyze short-run and long-run effects of shocks. Price level adjustments move the economy from short-run to long-run equilibrium.
3. The document contains an example analyzing the 2001 US recession using the IS-LM framework, examining the effects of stock market decline, 9/11, accounting scandals, and fiscal and monetary policy responses.
The document discusses government debt and perspectives on it. It covers measurement problems with the deficit figure due to inflation, business cycles, and uncounted liabilities. It also summarizes the traditional view that debt lowers national saving versus the Ricardian view that it does not affect saving. Most economists oppose a balanced budget rule as it hinders fiscal policy goals like stabilization.
The theory of multiplier and acceleration principle chapter 3Nayan Vaghela
The theory of multiplier and acceleration principle chapter 3, functioning of investment multiplier, the process of income generation through multiplier, acceleration principle, limitations of multiplier and acceleration.
This document provides an overview of investment. It discusses three types of investment: business fixed investment, residential investment, and inventory investment. It then explains the neoclassical model of business fixed investment, which shows how investment depends on the marginal product of capital, interest rate, and tax rules. It also discusses Tobin's q theory of investment and factors that can influence investment like the stock market, financing constraints, and the housing market.
Permanent and Life Cycle Income HypothesisJosephAsafo1
The document discusses the Permanent Income Hypothesis (PIH) and Life Cycle Hypothesis (LCH). It explains that according to PIH, consumption is based on permanent income rather than current income. Current income has both permanent and transitory components. The LCH suggests that consumption varies over a person's life cycle as they save when young and spend when retired to maintain smooth consumption levels. The LCH consumption function shows consumption depends on both wealth and income levels over a person's lifetime.
This document provides information about exchange rate determination. It begins with welcoming the audience and introducing the presenters. It then defines exchange rates and discusses their importance for international business. It describes the three main types of exchange rate systems - fixed, floating, and managed - and discusses their advantages and disadvantages. Finally, it outlines several theories for how exchange rates are determined, such as purchasing power parity theory and the balance of payments approach. It also lists some key determinants of exchange rates and discusses the impact of exchange rate fluctuations on multinational corporations' decisions.
Here are the key impacts of an increase in investment demand in a small open economy:
- Investment demand I(r*) increases.
- Saving S does not change.
- Net capital outflow decreases as domestic investment increases and saving remains the same.
- Net exports NX decrease as the trade balance deteriorates to finance the higher investment through net capital inflows.
So in summary, an increase in investment demand leads to a deterioration in the trade balance (lower NX) and lower net capital outflow, while saving remains unchanged.
CHAPTER 5 The Open Economy slide 23
The document summarizes several economic theories of consumption:
1) John Maynard Keynes theorized that consumption depends on current income, while later models incorporated expected future income and wealth.
2) Irving Fisher introduced intertemporal choice theory, assuming consumers maximize lifetime utility subject to budget constraints.
3) Franco Modigliani's life-cycle hypothesis proposes consumption varies over a person's life cycle as they save during working years and dissave in retirement.
4) Milton Friedman's permanent income hypothesis views current income as having permanent and transitory components, with consumption based on permanent income.
The Fama-French model predicts a lower required return for this stock compared to the CAPM. This is because the Fama-French model accounts for additional factors beyond just market risk.
This document discusses the requirement for a foreign exchange policy for a company with international operations. It outlines the risks such as exchange rate risk, sovereign risk, and liquidity risk that the policy needs to address. It provides details on key parameters for defining and implementing the policy, including objectives, exposure priorities, risk thresholds, and responsibility allocation. Finally, it discusses various hedging techniques that can be used to manage transaction exposures, including forwards, money market hedges, options, cross hedging, and swaps. The policy aims to minimize foreign exchange risk and reduce volatility in costs, profits, and company valuation from currency fluctuations.
This chapter discusses the relationship between money, inflation, and prices according to the quantity theory of money. It introduces key concepts such as the money supply, monetary policy, the quantity equation, velocity of money, and how the money supply and inflation are connected. The quantity theory predicts a direct relationship between the growth of the money supply and the inflation rate in the long run.
The document discusses the yield curve, which graphs bond yields against their maturities. A normal yield curve has longer-term bonds yielding more than shorter-term bonds due to longer-term risks. An inverted yield curve occurs when short-term yields are higher than long-term yields, potentially signifying an upcoming recession. A flat or humped yield curve means short and long-term yields are close, predicting an economic transition. The document also summarizes several theories about yield curves, such as the expectations theory where long-term rates forecast future short rates.
Friedman developed a theory of demand for money that asserts it is a function of total wealth, the division of wealth between human and non-human forms, rates of return on various assets, and other influences on tastes and preferences. His demand for money function includes variables like income, asset prices, and interest rates. Empirical studies found the demand for money is stable and more related to permanent income than current income. For underdeveloped countries, demand may be interest-inelastic and influenced more by expected price changes than interest rates due to financial and economic dualism.
The Marshall-Lerner approach states that devaluation of a currency will improve the balance of payments if the sum of the price elasticities of demand for exports and imports is greater than one. Devaluation makes a country's exports cheaper and imports more expensive, which can increase exports and decrease imports to reduce a current account deficit. However, its effects are only seen in the long-run as consumers and producers adjust, and the approach makes simplifying assumptions and ignores factors like domestic inflation and income distribution effects.
Monetary policy involves central banks using interest rates and money supply to influence economic activity and inflation. The Bank of England pursues monetary policy to meet a 2% inflation target. It uses tools like interest rates, quantitative easing, and forward guidance. Low rates since 2009 have aimed to boost growth but can hurt savers and cause housing booms. The effectiveness of monetary policy faces challenges like debt levels and confidence. There are debates around the costs and benefits of current low rates in the UK.
This document discusses money, inflation, and monetary policy. It defines money as assets used to purchase goods and services, and inflation as a general increase in prices. The quantity theory of money holds that inflation is primarily caused by increasing the money supply. When the money supply increases, the price level must also rise for monetary equilibrium to be maintained. Hyperinflation, with prices rising over 50% per month, can occur if a government prints too much money to fund spending. The costs of inflation include shoeleather costs, menu costs, and a redistribution of wealth through unexpected price changes.
The document discusses the concept of time value of money. It defines time value of money as the principle that money received in the present is worth more than the same amount received in the future. This is because money available now can earn interest and has greater purchasing power than the same amount in the future due to inflation and uncertainty. The document also discusses how time value of money is an important concept used in investment decisions, capital budgeting, and financing decisions to evaluate costs and returns over time.
The document discusses the concept of time value of money. It defines time value of money as the principle that money received in the present is worth more than the same amount received in the future. This is because money available now can be invested and earn interest. The document also discusses how time value of money is an important concept in financial management and capital budgeting decisions, as it allows comparing investment alternatives and cash flows over different time periods. It concludes by emphasizing the importance of considering time value of money when making various financial decisions to maximize profits.
This document discusses interest rates, including their level, structure, and related issues. It defines interest rates as the cost of borrowing expressed as a percentage. Interest rates are determined by demand and supply of funds. The structure and level of interest rates depends on factors like the yield curve, maturity structure, and default risk. There are five components that make up interest rates: real risk-free rate, expected inflation, default risk premium, liquidity premium, and maturity premium. The document also discusses the relationship between interest rates and inflation.
1. The document discusses using the IS-LM model to analyze the effects of shocks, fiscal policy, and monetary policy. It provides examples of analyzing different policy changes using the IS-LM diagram.
2. It then discusses how the IS-LM model can be used to derive the aggregate demand curve and analyze short-run and long-run effects of shocks. Price level adjustments move the economy from short-run to long-run equilibrium.
3. The document contains an example analyzing the 2001 US recession using the IS-LM framework, examining the effects of stock market decline, 9/11, accounting scandals, and fiscal and monetary policy responses.
The document discusses government debt and perspectives on it. It covers measurement problems with the deficit figure due to inflation, business cycles, and uncounted liabilities. It also summarizes the traditional view that debt lowers national saving versus the Ricardian view that it does not affect saving. Most economists oppose a balanced budget rule as it hinders fiscal policy goals like stabilization.
The theory of multiplier and acceleration principle chapter 3Nayan Vaghela
The theory of multiplier and acceleration principle chapter 3, functioning of investment multiplier, the process of income generation through multiplier, acceleration principle, limitations of multiplier and acceleration.
This document provides an overview of investment. It discusses three types of investment: business fixed investment, residential investment, and inventory investment. It then explains the neoclassical model of business fixed investment, which shows how investment depends on the marginal product of capital, interest rate, and tax rules. It also discusses Tobin's q theory of investment and factors that can influence investment like the stock market, financing constraints, and the housing market.
Permanent and Life Cycle Income HypothesisJosephAsafo1
The document discusses the Permanent Income Hypothesis (PIH) and Life Cycle Hypothesis (LCH). It explains that according to PIH, consumption is based on permanent income rather than current income. Current income has both permanent and transitory components. The LCH suggests that consumption varies over a person's life cycle as they save when young and spend when retired to maintain smooth consumption levels. The LCH consumption function shows consumption depends on both wealth and income levels over a person's lifetime.
This document provides information about exchange rate determination. It begins with welcoming the audience and introducing the presenters. It then defines exchange rates and discusses their importance for international business. It describes the three main types of exchange rate systems - fixed, floating, and managed - and discusses their advantages and disadvantages. Finally, it outlines several theories for how exchange rates are determined, such as purchasing power parity theory and the balance of payments approach. It also lists some key determinants of exchange rates and discusses the impact of exchange rate fluctuations on multinational corporations' decisions.
Here are the key impacts of an increase in investment demand in a small open economy:
- Investment demand I(r*) increases.
- Saving S does not change.
- Net capital outflow decreases as domestic investment increases and saving remains the same.
- Net exports NX decrease as the trade balance deteriorates to finance the higher investment through net capital inflows.
So in summary, an increase in investment demand leads to a deterioration in the trade balance (lower NX) and lower net capital outflow, while saving remains unchanged.
CHAPTER 5 The Open Economy slide 23
The document summarizes several economic theories of consumption:
1) John Maynard Keynes theorized that consumption depends on current income, while later models incorporated expected future income and wealth.
2) Irving Fisher introduced intertemporal choice theory, assuming consumers maximize lifetime utility subject to budget constraints.
3) Franco Modigliani's life-cycle hypothesis proposes consumption varies over a person's life cycle as they save during working years and dissave in retirement.
4) Milton Friedman's permanent income hypothesis views current income as having permanent and transitory components, with consumption based on permanent income.
The Fama-French model predicts a lower required return for this stock compared to the CAPM. This is because the Fama-French model accounts for additional factors beyond just market risk.
This document discusses the requirement for a foreign exchange policy for a company with international operations. It outlines the risks such as exchange rate risk, sovereign risk, and liquidity risk that the policy needs to address. It provides details on key parameters for defining and implementing the policy, including objectives, exposure priorities, risk thresholds, and responsibility allocation. Finally, it discusses various hedging techniques that can be used to manage transaction exposures, including forwards, money market hedges, options, cross hedging, and swaps. The policy aims to minimize foreign exchange risk and reduce volatility in costs, profits, and company valuation from currency fluctuations.
This chapter discusses the relationship between money, inflation, and prices according to the quantity theory of money. It introduces key concepts such as the money supply, monetary policy, the quantity equation, velocity of money, and how the money supply and inflation are connected. The quantity theory predicts a direct relationship between the growth of the money supply and the inflation rate in the long run.
The document discusses the yield curve, which graphs bond yields against their maturities. A normal yield curve has longer-term bonds yielding more than shorter-term bonds due to longer-term risks. An inverted yield curve occurs when short-term yields are higher than long-term yields, potentially signifying an upcoming recession. A flat or humped yield curve means short and long-term yields are close, predicting an economic transition. The document also summarizes several theories about yield curves, such as the expectations theory where long-term rates forecast future short rates.
Friedman developed a theory of demand for money that asserts it is a function of total wealth, the division of wealth between human and non-human forms, rates of return on various assets, and other influences on tastes and preferences. His demand for money function includes variables like income, asset prices, and interest rates. Empirical studies found the demand for money is stable and more related to permanent income than current income. For underdeveloped countries, demand may be interest-inelastic and influenced more by expected price changes than interest rates due to financial and economic dualism.
The Marshall-Lerner approach states that devaluation of a currency will improve the balance of payments if the sum of the price elasticities of demand for exports and imports is greater than one. Devaluation makes a country's exports cheaper and imports more expensive, which can increase exports and decrease imports to reduce a current account deficit. However, its effects are only seen in the long-run as consumers and producers adjust, and the approach makes simplifying assumptions and ignores factors like domestic inflation and income distribution effects.
Monetary policy involves central banks using interest rates and money supply to influence economic activity and inflation. The Bank of England pursues monetary policy to meet a 2% inflation target. It uses tools like interest rates, quantitative easing, and forward guidance. Low rates since 2009 have aimed to boost growth but can hurt savers and cause housing booms. The effectiveness of monetary policy faces challenges like debt levels and confidence. There are debates around the costs and benefits of current low rates in the UK.
This document discusses money, inflation, and monetary policy. It defines money as assets used to purchase goods and services, and inflation as a general increase in prices. The quantity theory of money holds that inflation is primarily caused by increasing the money supply. When the money supply increases, the price level must also rise for monetary equilibrium to be maintained. Hyperinflation, with prices rising over 50% per month, can occur if a government prints too much money to fund spending. The costs of inflation include shoeleather costs, menu costs, and a redistribution of wealth through unexpected price changes.
The document discusses the concept of time value of money. It defines time value of money as the principle that money received in the present is worth more than the same amount received in the future. This is because money available now can earn interest and has greater purchasing power than the same amount in the future due to inflation and uncertainty. The document also discusses how time value of money is an important concept used in investment decisions, capital budgeting, and financing decisions to evaluate costs and returns over time.
The document discusses the concept of time value of money. It defines time value of money as the principle that money received in the present is worth more than the same amount received in the future. This is because money available now can be invested and earn interest. The document also discusses how time value of money is an important concept in financial management and capital budgeting decisions, as it allows comparing investment alternatives and cash flows over different time periods. It concludes by emphasizing the importance of considering time value of money when making various financial decisions to maximize profits.
Depreciation and the Time Value of Money: A primer of the arXiv articleBrendon Farrell
A primer of the arXiv article by Brendon Farrell
Article link: https://arxiv.org/ftp/arxiv/papers/1605/1605.00080.pdf
Contact: brendon.farrell@griffithuni.edu.au
The document discusses the time value of money concept. It explains that money available now is worth more than the same amount in the future due to potential earning capacity. Factors like principal, interest rate, number of periods, and compounding vs. discounting techniques affect time value of money calculations. Reasons for the time value of money include risk, inflation, consumption preferences, and investment opportunities. The importance and techniques of time value of money are also summarized.
This document defines and explains several key financial concepts:
1) Amortization refers to spreading payments over multiple periods and is used for loan repayments and expensing intangible assets. Loan amortization distributes payments into principal and interest installments, while asset amortization expenses their value over time.
2) Other terms defined include ask price, bid price, base effect, buydown, buyer's credit, capitalization rate, cash flow, and collateral. Collateral serves as protection for lenders by allowing them to seize the pledged asset if the borrower defaults on their loan.
The document provides an introduction to valuing debt securities. It discusses that valuation involves estimating expected cash flows, determining appropriate discount rates, and calculating the present value of cash flows. The traditional approach discounts all cash flows by a single rate, while the arbitrage-free approach uses different rates for each cash flow. Treasury spot rates are used to avoid arbitrage opportunities when valuing bonds. Models like binomial and Monte Carlo are used to value bonds with embedded options.
Capital budgeting for small and medium businessesTim Richardson
Discuss practical approaches to supporting investment decisions at small and medium businesses. Discuss DCF and its weaknesses. Discusses infrastructure investments which don't have a clear business case but which are essential.
Long term decision-making for health and social care
Long term decision-making for health and social care
Long term decision-making for health and social care Long term decision-making for health and social care Long term decision-making for health and social care Long term decision-making for health and social care Long term decision-making for health and social care Long term decision-making for health and social care
Defining investment:
A current commitment of £ for a period of time in order to derive future payments that will compensate for:
• the time the funds are committed
• the expected rate of inflation
• uncertainty of future flow of funds
This document discusses how banking and interest rates impact business cycles. It explains that individual's time preferences determine how much interest is needed to save rather than consume now. Banks set interest rates paid to savers and charged to borrowers. Artificially low rates set by central banks can misallocate resources by signaling to entrepreneurs there is more savings than really exists, leading to overinvestment and an unsustainable boom that will bust into recession. Continued credit expansion cannot prolong the boom indefinitely and will ultimately lead to inflation or deflation when the central bank adjusts rates.
Michael CobbProfessor Michael LoizidesMKT-325 Critique11 De.docxannandleola
Michael Cobb
Professor: Michael Loizides
MKT-325 Critique
11 December 2015
Time Value of Money
Cash accessible at present value was worth more than the same sum later on because of its potential gaining limit (Kimmel & Weygandt, 2007). This center guideline of account holds that, if cash can procure interest, any measure of cash is worth more the sooner it is gotten.
Present Value Basics
On the off chance that you got $10,000 today, the present value quality would obviously be $10,000 in light of the fact that present value worth is the thing that your venture gives you now if you somehow managed to spend it today. If $10,000 were to be gotten in a year, the present estimation of the sum would not be $10,000 because you don't have it in your grasp now, in the present. To locate the present estimation of the $10,000 you will get later on, you have to imagine that the $10,000 is the aggregate future estimation of a sum that you contributed today (Elliot & Elliott 2008). As such, to locate the present estimation without bounds $10,000, we have to figure out the amount we would need to put in today keeping in mind the end goal to get that $10,000 later on.
To figure present value quality or the sum that we would need to contribute today, you must subtract the (theoretical) collected enthusiasm from the $10,000. To accomplish this, we can rebate the future installment sum ($10,000) by the loan fee for the period. All you are doing is revising the future quality comparison above so you may settle for P. We should walk in reverse from the $10,000 offered in Option B. Keep in mind; the $10,000 to be gotten in three years is truly the same as the future estimation of a speculation. On the off chance that today we were at the two-year point, we would rebate the installment back one year. At the two-year point, the present estimation of the $10,000 to be gotten in one year is spoken to as the accompanying:
Present estimation of future installment of $10,000 at end of year two:
Note that if today we were at the one-year point, the above $9,569.38 would be viewed as the future estimation of our speculation one year from now.
In a regular case, the variables may be equalization (the genuine or ostensible estimation of an obligation or a money related resource regarding fiscal units), an occasional rate of interest, the quantity of periods, and a progression of money streams (Kimmel & Weygandt, 2007). (On account of an obligation, money streams are installments against foremost and enthusiasm; on account of a budgetary resource, these are commitments to or withdrawals from the equalization.) More, for the most part, the money streams may not be intermittent but rather may be indicated independently (Elliot & Elliott 2008). Any of the variables may be the independent variable (the looked for an answer) in a given issue. For instance, one may realize that: the hobby is 0.5% for every period (every month, say); the quantity of periods is 60 (months); th ...
The document discusses bond pricing and provides examples of calculating bond prices. It begins by explaining that a bond's price is determined by comparing its coupon rate to prevailing interest rates. It then provides the basic bond pricing formula and explains how to calculate the price of a bond using present value calculations and discounting future cash flows. The document also discusses accounting for different payment frequencies in the pricing formula.
This document provides an outline and overview of key concepts from Chapter 6 of Principles of Microeconomics 3e, including:
1) Consumer choices are constrained by budgets and consumers seek to maximize total utility through their choices. Marginal utility and the law of diminishing returns guide consumers to optimal choices.
2) Changes in income and prices shift budget constraints, affecting consumption choices as consumers re-optimize their utility. Higher incomes generally lead to more consumption of normal goods. Higher prices generally lead to less consumption of the good that increased in price.
3) Behavioral economics recognizes non-rational factors like mental accounting and present bias that influence consumer decisions, challenging the traditional rational choice framework.
Basic Principles in Economics and Managerial Economics Mohammed Jasir PV
This document discusses basic concepts in economics and managerial economics. It defines key terms like scarcity, choice, opportunity cost, and resource allocation. Scarcity means resources are limited, which forces individuals and societies to make choices that incur a cost of alternatives forgone known as opportunity cost. Managerial economics helps managers make rational decisions by considering incremental costs and revenues, marginal analysis, equi-marginal returns, and accounting for time perspectives and discounting of future values. Decisions can involve a company's internal operations or external environment. Overall, the document provides an overview of foundational economic principles useful for management decision making.
The document defines several financial concepts related to loans and assets. Amortization refers to spreading loan payments or expensing intangible asset costs over multiple periods. For loans, each payment consists of both principal and interest, while for assets it reflects their use, obsolescence, or decline in value over time. Compound interest arises when interest is added to the principal so that the interest also earns interest from that point onward.
This document discusses working capital management and inventory management. It defines working capital and its sources, including short term sources like factoring, installment credit, bank overdrafts, commercial papers, and letters of credit. Long term sources include equity capital and loans. It also discusses estimating working capital needs using different approaches. The document then defines inventory and its management, including inventory turnover ratio and inventory control techniques like ABC analysis.
The document discusses different types of asset valuation including book value, market value, and intrinsic value. It then focuses on bond and stock valuation. For bonds, it describes how to calculate value using the present value of periodic interest payments and repayment of principal. For stocks, it introduces the dividend discount model for valuing common stock assuming infinite holding period and constant dividend growth. Preferred stock is valued similarly using the DDM with 0% growth rate.
This document provides an overview of key concepts related to time value of money including:
- Defined benefit and defined contribution pension plans and how benefits are calculated under each.
- Common retirement account types like 401(k) plans which allow tax-deferred contributions and earnings.
- The core concept that money has a time value because it can be invested and earn returns over time.
- Key time value of money calculations like present value, future value, and determining interest rates or time periods for investments to double in value.
- The differences between simple and compound interest and how compound interest leads to exponential growth.
- How annuities represent a stream of regular cash flows and the calculations
Here are the key steps to solve this problem:
1) The monthly interest rate (i) is given as 0.287% per month. To convert to a decimal, we divide by 100: i = 0.00287
2) To find the equivalent annual rate (EAR), we use the compound interest formula:
(1 + i)^12 - 1 = EAR
(1 + 0.00287)^12 - 1 = 0.0347 = 3.47%
So the equivalent annual rate for an interest rate of 0.287% per month, compounded monthly, is 3.47%.
3) To find the future value (FV) of €100 after 1 year:
Dr. Alyce Su Cover Story - China's Investment Leadermsthrill
In World Expo 2010 Shanghai – the most visited Expo in the World History
https://www.britannica.com/event/Expo-Shanghai-2010
China’s official organizer of the Expo, CCPIT (China Council for the Promotion of International Trade https://en.ccpit.org/) has chosen Dr. Alyce Su as the Cover Person with Cover Story, in the Expo’s official magazine distributed throughout the Expo, showcasing China’s New Generation of Leaders to the World.
[4:55 p.m.] Bryan Oates
OJPs are becoming a critical resource for policy-makers and researchers who study the labour market. LMIC continues to work with Vicinity Jobs’ data on OJPs, which can be explored in our Canadian Job Trends Dashboard. Valuable insights have been gained through our analysis of OJP data, including LMIC research lead
Suzanne Spiteri’s recent report on improving the quality and accessibility of job postings to reduce employment barriers for neurodivergent people.
Decoding job postings: Improving accessibility for neurodivergent job seekers
Improving the quality and accessibility of job postings is one way to reduce employment barriers for neurodivergent people.
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck mari...Donc Test
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck maria r mitchell.docx
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck maria r mitchell.docx
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck maria r mitchell.docx
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
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Economic Risk Factor Update: June 2024 [SlideShare]Commonwealth
May’s reports showed signs of continued economic growth, said Sam Millette, director, fixed income, in his latest Economic Risk Factor Update.
For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.
Fabular Frames and the Four Ratio ProblemMajid Iqbal
Digital, interactive art showing the struggle of a society in providing for its present population while also saving planetary resources for future generations. Spread across several frames, the art is actually the rendering of real and speculative data. The stereographic projections change shape in response to prompts and provocations. Visitors interact with the model through speculative statements about how to increase savings across communities, regions, ecosystems and environments. Their fabulations combined with random noise, i.e. factors beyond control, have a dramatic effect on the societal transition. Things get better. Things get worse. The aim is to give visitors a new grasp and feel of the ongoing struggles in democracies around the world.
Stunning art in the small multiples format brings out the spatiotemporal nature of societal transitions, against backdrop issues such as energy, housing, waste, farmland and forest. In each frame we see hopeful and frightful interplays between spending and saving. Problems emerge when one of the two parts of the existential anaglyph rapidly shrinks like Arctic ice, as factors cross thresholds. Ecological wealth and intergenerational equity areFour at stake. Not enough spending could mean economic stress, social unrest and political conflict. Not enough saving and there will be climate breakdown and ‘bankruptcy’. So where does speculative design start and the gambling and betting end? Behind each fabular frame is a four ratio problem. Each ratio reflects the level of sacrifice and self-restraint a society is willing to accept, against promises of prosperity and freedom. Some values seem to stabilise a frame while others cause collapse. Get the ratios right and we can have it all. Get them wrong and things get more desperate.
The Impact of Generative AI and 4th Industrial RevolutionPaolo Maresca
This infographic explores the transformative power of Generative AI, a key driver of the 4th Industrial Revolution. Discover how Generative AI is revolutionizing industries, accelerating innovation, and shaping the future of work.
3. Time preference
• What is time preference?
• Views of Economists:
• Neo-classical views.
• Austrian school views.
• Temporal discounting.
• Examples.
4. What is time preference?
• Time preference is the current relative valuation placed on receiving
a good or some cash at an earlier date compared with receiving it at
a later date.
• Time preferences are captured mathematically in the discount
function. The higher the time preference, the higher the discount
placed on returns receivable or costs payable in the future.
5. Neo-classical views.
• In the neoclassical theory of interest due to Lrving Fisher the rate of
time preference is usually taken as a parameter in an
individual’s utility function which captures the trade off between
consumption today and consumption in the future.
6. Austrian school views.
• In his book Capital and Interest, the Austrian economist Eugen von Böhm-Bawerk built upon
the time-preference ideas of Carl Menger, insisting that there is always a difference in value
between present goods and future goods of equal quality, quantity, and form. Furthermore,
the value of future goods diminishes as the length of time necessary for their completion
increases.
• George Reisman says that time preference arises because of the possibility of being less able
or totally unable to enjoy the use of goods in the future. The further into the future someone
considers, the less likely it is that this someone will be able to enjoy the goods as much as
they can be enjoyed now.
7. Temporal discounting.
• Temporal discounting is the tendency of people to discount rewards as they approach a
temporal horizon in the future or the To put it another way, it is a tendency to give greater
value to rewards as they move away from their temporal horizons and towards the "now".
For instance, a nicotine deprived smoker may highly value a cigarette available any time in
the next 6 hours but assign little or no value to a cigarette available in 6 months.
8. Example
• A practical example is if Jim and Bob go out for a drink and Jim has no money so Bob lends
Jim $10. The next day Bob comes back to Jim, and Jim says, "Bob, you can have $10 now, or
at the end of the month when I get paid I will give you $15." Bob's time preference would
change depending on if he trusted Jim and how much he needs the money now, thinks he
can wait, or would prefer to have $15 at the end of the month than $10 now. Present and
expected needs, present and expected income affect the time preference.
10. What is discounting?
In relation to the time value of money, which argues that a dollar today is worth more than a
dollar tomorrow, discounting can be defined as the act of estimating the present value of a
future payment or a series of cash flows that are to be received in the future. Discounting is a
key element in valuing future cash flows.
11. Discount Rate:
A discount rate (also referred to as the discount yield) is the rate used to discount future cash
flows back to their present value. In corporate finance, cash flows are normally discounted at a
company’s weighted average cost of capital. its hurdle rate, or the required rate of return. The
hurdle rate is the return that investors anticipate concerning the risk associated with the
investment they have made.
12. Formula
• To derive a discounted value or the present value,
the following equation can be used:
FV is used to denote the
future value of cash flow.
r is used to denote the
discount rate.
t is used to denote the time
period that an investment
will be held for.
The present value can also be the sum of all future cash flows
discounted back. It is known as the Net Present Value.
13. Types of Discount Rates
The types of discount rates commonly used in corporate finance include:
•Weighted Average Cost of Capital: Normally used to compute a company’s enterprise value.
•Cost of equity: Can be used to calculate a company’s equity value.
•Cost of debt: Used for bond and fixed-income security valuation.
•A pre-defined hurdle rate: Generally used in evaluating corporate projects that are internal
and to account for the time value of money
•Risk-free rate: Used in calculating the cost of equity.
14. Positive Time Preference as Basis for Discounting
A consumer is said to have positive time preference if he is unwilling to exchange an extra
quantity of consumption now for an extra quantity later unless the amount of consumption later
were larger. Negative time preference entails the willingness to sacrifice a unit of consumption
now for less than a unit later. Zero time preference can be defined in a similar way.
If positive time preference turns out to be a systematic human tendency it means that people
naturally discount future consumption, and this should be sufficient justification for discounting
future benefits and costs of investment
• It should be noted that the assumption of positive time preference has been used, since Bohm-
Bawerk, as one explanation of, and justification for, the existence of a positive rate of interest.
15. Assumption of Positive Time Preference
The basic justification for assuming positive time preference can be traced back to Bohm-Bawerk who
thought that “If the marginal utility of future goods is lower because of their increased provision, present
goods must be preferred”
If income and consumption per head in an economy are growing, the representative person usually
expects the marginal utility of consumption at some future point of time to be less than it is at present.
Accordingly, if he is asked to sacrifice present consumption in return for extra consumption in the future,
he would require future consumption to be larger, i.e. he would discount it.As for those individuals who
expect their income to fall through time, it would be advantageous for them to save even without the
prospect of larger future consumption. But on a weighted average, such individuals are a minority in a
progressive economy.
The Case for PositiveTime Preference