SlideShare a Scribd company logo
Time Value
of Money
Session AgendaSession Agenda
• IntroductionIntroduction
• Time PreferenceTime Preference
• Productivity of CapitalProductivity of Capital
• Uncertain FutureUncertain Future
• Level of Interest ratesLevel of Interest rates
• The Actuarial relationship to theThe Actuarial relationship to the
Time Value of Money.Time Value of Money.
IntroductionIntroduction
• The time value of money a fundamentalThe time value of money a fundamental
concept of actuarial science.concept of actuarial science.
• Actuaries use this concept, together withActuaries use this concept, together with
the concept of probability, in thethe concept of probability, in the
calculation of actuarial present values –calculation of actuarial present values –
which in tern becomes the buildingwhich in tern becomes the building
blocks of actuarial models.blocks of actuarial models.
• Two theories of time value of moneyTwo theories of time value of money
• Time PreferenceTime Preference
• Productivity of CapitalProductivity of Capital
Time PreferenceTime Preference
• People need and use moneyPeople need and use money
• For current livingFor current living
• For life styleFor life style
• For future needsFor future needs
• Also for protectionAlso for protection
• Present value of money=present value of goodsPresent value of money=present value of goods
• Borrowing from future is done becauseBorrowing from future is done because
• To satisfy current needsTo satisfy current needs
• To plan for futureTo plan for future
– Hence, future money can satisfy Current/PresentHence, future money can satisfy Current/Present
needs only if they can be pledged, borrowed againstneeds only if they can be pledged, borrowed against
or otherwise moved from future into present.or otherwise moved from future into present.
Productivity of CapitalProductivity of Capital
• The strong preference for present money may be adequateThe strong preference for present money may be adequate
in itself to explain consumer borrowing and consumerin itself to explain consumer borrowing and consumer
lending.lending.
• Business small or large require capital goods to prosper.Business small or large require capital goods to prosper.
• The retailer’s place of business and inventory, and theThe retailer’s place of business and inventory, and the
farmer’s seed, fertilizer, and machinery represent the capitalfarmer’s seed, fertilizer, and machinery represent the capital
goods which, combined with labor, produce business income.goods which, combined with labor, produce business income.
• In long run a business will be successful only if the ROCIn long run a business will be successful only if the ROC
employed is greater than the rate of Interest.employed is greater than the rate of Interest.
• Time value of money is often measured by the income thatTime value of money is often measured by the income that
capital can produce, including business profits, dividends oncapital can produce, including business profits, dividends on
common stock, and other forms of investment income notcommon stock, and other forms of investment income not
Uncertain FutureUncertain Future
• Time preferences are affected by inability to see the futureTime preferences are affected by inability to see the future
clearly.clearly.
• Interest rates are expected to rise when uncertainty is high.Interest rates are expected to rise when uncertainty is high.
• Fears of inflation, the possibility of war, worries about tradeFears of inflation, the possibility of war, worries about trade
deficits or the value of the currency, are all conducive todeficits or the value of the currency, are all conducive to
increasing uncertainty, and to a higher price for presentincreasing uncertainty, and to a higher price for present
money.money.
Level of Interest ratesLevel of Interest rates
• For an analysis of interest rateFor an analysis of interest rate
behaviour, monitory considerationsbehaviour, monitory considerations
should be taken into account.should be taken into account.
• It is commonly held that the price ofIt is commonly held that the price of
money, like the price of other goodsmoney, like the price of other goods
varies with supply and demand.varies with supply and demand.
The Actuarial relationship toThe Actuarial relationship to
the Time Value of Moneythe Time Value of Money
• Like any person involved in business,Like any person involved in business,
economics, or finance, the actuary useseconomics, or finance, the actuary uses
the time value of money concept in histhe time value of money concept in his
daily work. There are two reasons for it.daily work. There are two reasons for it.
– First, because they are appliedFirst, because they are applied
mathematiciansmathematicians
– Financial system is the key area for themFinancial system is the key area for them
– Insurance is a long term investment contractInsurance is a long term investment contract
– There are also short term contractsThere are also short term contracts
ThankThank
YouYou
Activity for the next session???Activity for the next session???
• Prepare synopsis of the case to bePrepare synopsis of the case to be
discussed. REPORT OF ‘SOA’ ONdiscussed. REPORT OF ‘SOA’ ON
GROUP LIFE – Submit on 4GROUP LIFE – Submit on 4thth
of August’08of August’08
at BOD.at BOD.
Activity for the next session???Activity for the next session???

More Related Content

What's hot

time value of money
 time value of money time value of money
time value of money
Riya Arora
 
Time value of money
Time value of moneyTime value of money
Time value of money
mishra21
 
Time value of money
Time value of moneyTime value of money
Time value of money
Jubayer Alam Shoikat
 
Amortizing Loan | Finance
Amortizing Loan | FinanceAmortizing Loan | Finance
Amortizing Loan | Finance
Transweb Global Inc
 
Time Value Of Money -Finance
Time Value Of Money -FinanceTime Value Of Money -Finance
Time Value Of Money -Finance
Zoha Qureshi
 
time value of money
time value of moneytime value of money
time value of money
ashfaque75
 
Capital Market
Capital MarketCapital Market
Capital Market
Utkarsh Bisht
 
Credit Analysis 101
Credit Analysis 101Credit Analysis 101
Credit Analysis 101
Libby Bierman
 
The Time Value of Money
The Time Value of MoneyThe Time Value of Money
The Time Value of Money
Jyoti Yadav
 
Portfolio theory
Portfolio theoryPortfolio theory
Portfolio theory
Mohammed Umair
 
Time Value of Money
Time Value of MoneyTime Value of Money
Time Value of Money
Maged Elsakka
 
Financial Decisions Presentation
Financial Decisions PresentationFinancial Decisions Presentation
Financial Decisions Presentation
mbachnak
 
Bond Valuation
Bond ValuationBond Valuation
Bond Valuation
Akram Hossain
 
Financial risk management
Financial risk managementFinancial risk management
Financial risk management
GAURAV SHARMA
 
Time Value of Money
Time Value of MoneyTime Value of Money
Time Value of Money
Indukoori S S N Raju - MVGR DMS
 
Bond valuation
Bond valuationBond valuation
Bond valuation
shekhar sharma
 
Capital Investment Analysis
Capital Investment AnalysisCapital Investment Analysis
Capital Investment Analysis
Flevy.com Best Practices
 
Chapter 6 interest rate and bond valuation
Chapter 6 interest rate and bond valuationChapter 6 interest rate and bond valuation
Chapter 6 interest rate and bond valuation
Michael Ong
 
Time Value of Money
Time Value of MoneyTime Value of Money
Time Value of Money
Joseph Winthrop Godoy
 
Time value-of-money
Time value-of-moneyTime value-of-money
Time value-of-money
Vimal Rajliya
 

What's hot (20)

time value of money
 time value of money time value of money
time value of money
 
Time value of money
Time value of moneyTime value of money
Time value of money
 
Time value of money
Time value of moneyTime value of money
Time value of money
 
Amortizing Loan | Finance
Amortizing Loan | FinanceAmortizing Loan | Finance
Amortizing Loan | Finance
 
Time Value Of Money -Finance
Time Value Of Money -FinanceTime Value Of Money -Finance
Time Value Of Money -Finance
 
time value of money
time value of moneytime value of money
time value of money
 
Capital Market
Capital MarketCapital Market
Capital Market
 
Credit Analysis 101
Credit Analysis 101Credit Analysis 101
Credit Analysis 101
 
The Time Value of Money
The Time Value of MoneyThe Time Value of Money
The Time Value of Money
 
Portfolio theory
Portfolio theoryPortfolio theory
Portfolio theory
 
Time Value of Money
Time Value of MoneyTime Value of Money
Time Value of Money
 
Financial Decisions Presentation
Financial Decisions PresentationFinancial Decisions Presentation
Financial Decisions Presentation
 
Bond Valuation
Bond ValuationBond Valuation
Bond Valuation
 
Financial risk management
Financial risk managementFinancial risk management
Financial risk management
 
Time Value of Money
Time Value of MoneyTime Value of Money
Time Value of Money
 
Bond valuation
Bond valuationBond valuation
Bond valuation
 
Capital Investment Analysis
Capital Investment AnalysisCapital Investment Analysis
Capital Investment Analysis
 
Chapter 6 interest rate and bond valuation
Chapter 6 interest rate and bond valuationChapter 6 interest rate and bond valuation
Chapter 6 interest rate and bond valuation
 
Time Value of Money
Time Value of MoneyTime Value of Money
Time Value of Money
 
Time value-of-money
Time value-of-moneyTime value-of-money
Time value-of-money
 

Viewers also liked

Time value of money ppt.
Time value of money ppt.Time value of money ppt.
Time value of money ppt.
priya sinha
 
Time value of money
Time value of moneyTime value of money
Time value of money
Atif Hossain
 
Capital budgeting
Capital budgetingCapital budgeting
Capital budgeting
ALOK GIRI
 
Time value of money
Time value of money Time value of money
Time value of money
Priya Dharsini
 
Capital budgeting
Capital budgetingCapital budgeting
Capital budgeting
Atul Gophane
 
Time value of money
Time value of moneyTime value of money
Time value of money
Delwin Arikatt
 
Capital Budgeting
Capital BudgetingCapital Budgeting
Capital Budgeting
Dayasagar S
 

Viewers also liked (7)

Time value of money ppt.
Time value of money ppt.Time value of money ppt.
Time value of money ppt.
 
Time value of money
Time value of moneyTime value of money
Time value of money
 
Capital budgeting
Capital budgetingCapital budgeting
Capital budgeting
 
Time value of money
Time value of money Time value of money
Time value of money
 
Capital budgeting
Capital budgetingCapital budgeting
Capital budgeting
 
Time value of money
Time value of moneyTime value of money
Time value of money
 
Capital Budgeting
Capital BudgetingCapital Budgeting
Capital Budgeting
 

Similar to Time value of money

Corporate Accounting (Amit Shelke)0.pdf
Corporate Accounting (Amit Shelke)0.pdfCorporate Accounting (Amit Shelke)0.pdf
Corporate Accounting (Amit Shelke)0.pdf
RitikThakur72
 
Introduction to financial management
Introduction to financial managementIntroduction to financial management
Introduction to financial management
Visakhapatnam
 
MODULE- I.pptx
MODULE- I.pptxMODULE- I.pptx
MODULE- I.pptx
FashionHub12
 
Corporate finance book_ppt_y_hj_rkrjg2g
Corporate finance book_ppt_y_hj_rkrjg2gCorporate finance book_ppt_y_hj_rkrjg2g
Corporate finance book_ppt_y_hj_rkrjg2g
Partha Das
 
Time value of money
Time value of moneyTime value of money
Time value of money
Mahesh Kadam
 
company finances 101 for junior agency people
company finances 101 for junior agency peoplecompany finances 101 for junior agency people
company finances 101 for junior agency people
Ged Carroll
 
ALL ABOUT Working capital management
ALL ABOUT Working capital management ALL ABOUT Working capital management
ALL ABOUT Working capital management
Mohammed Jasir PV
 
Financial management
Financial managementFinancial management
Financial management
sbkkpr2018
 
Zuvari cements working capital management
Zuvari  cements  working capital managementZuvari  cements  working capital management
Zuvari cements working capital management
Rajaram Parcha
 
Entrepreneurial pathway ppt (1).ppt
Entrepreneurial pathway ppt (1).pptEntrepreneurial pathway ppt (1).ppt
Entrepreneurial pathway ppt (1).ppt
MARTINGATHIRU1
 
Fm chapter 2
Fm chapter 2Fm chapter 2
Fm chapter 2
Le Ha
 
Wg comdr ppt 1
Wg comdr ppt 1Wg comdr ppt 1
Wg comdr ppt 1
kunjan231288
 
SHR ppt 1
SHR ppt 1SHR ppt 1
SHR ppt 1
kunjan_shah
 
Invest.persp1.
Invest.persp1.Invest.persp1.
Invest.persp1.
shwetathakrall
 
Vienna value investing meetup 6
Vienna value investing meetup  6Vienna value investing meetup  6
Vienna value investing meetup 6
Martin Bodocky
 
Wc management ppt
Wc management pptWc management ppt
Wc management ppt
GS Popli
 
Infocom Webinar: Healthy Companies
Infocom Webinar: Healthy CompaniesInfocom Webinar: Healthy Companies
Infocom Webinar: Healthy Companies
Corelytics by CoreConnex, Inc.
 
Working capital management
Working capital managementWorking capital management
Working capital management
ROHITH U J
 
Kleos Africa webinar Babatunde Akin-Moses - Business Valuation Simplified
Kleos Africa webinar   Babatunde Akin-Moses - Business Valuation SimplifiedKleos Africa webinar   Babatunde Akin-Moses - Business Valuation Simplified
Kleos Africa webinar Babatunde Akin-Moses - Business Valuation Simplified
Glory Enyinnaya
 
7330 Lecture01 Intro and Review-F10.ppt
7330 Lecture01 Intro and Review-F10.ppt7330 Lecture01 Intro and Review-F10.ppt
7330 Lecture01 Intro and Review-F10.ppt
durrani huda
 

Similar to Time value of money (20)

Corporate Accounting (Amit Shelke)0.pdf
Corporate Accounting (Amit Shelke)0.pdfCorporate Accounting (Amit Shelke)0.pdf
Corporate Accounting (Amit Shelke)0.pdf
 
Introduction to financial management
Introduction to financial managementIntroduction to financial management
Introduction to financial management
 
MODULE- I.pptx
MODULE- I.pptxMODULE- I.pptx
MODULE- I.pptx
 
Corporate finance book_ppt_y_hj_rkrjg2g
Corporate finance book_ppt_y_hj_rkrjg2gCorporate finance book_ppt_y_hj_rkrjg2g
Corporate finance book_ppt_y_hj_rkrjg2g
 
Time value of money
Time value of moneyTime value of money
Time value of money
 
company finances 101 for junior agency people
company finances 101 for junior agency peoplecompany finances 101 for junior agency people
company finances 101 for junior agency people
 
ALL ABOUT Working capital management
ALL ABOUT Working capital management ALL ABOUT Working capital management
ALL ABOUT Working capital management
 
Financial management
Financial managementFinancial management
Financial management
 
Zuvari cements working capital management
Zuvari  cements  working capital managementZuvari  cements  working capital management
Zuvari cements working capital management
 
Entrepreneurial pathway ppt (1).ppt
Entrepreneurial pathway ppt (1).pptEntrepreneurial pathway ppt (1).ppt
Entrepreneurial pathway ppt (1).ppt
 
Fm chapter 2
Fm chapter 2Fm chapter 2
Fm chapter 2
 
Wg comdr ppt 1
Wg comdr ppt 1Wg comdr ppt 1
Wg comdr ppt 1
 
SHR ppt 1
SHR ppt 1SHR ppt 1
SHR ppt 1
 
Invest.persp1.
Invest.persp1.Invest.persp1.
Invest.persp1.
 
Vienna value investing meetup 6
Vienna value investing meetup  6Vienna value investing meetup  6
Vienna value investing meetup 6
 
Wc management ppt
Wc management pptWc management ppt
Wc management ppt
 
Infocom Webinar: Healthy Companies
Infocom Webinar: Healthy CompaniesInfocom Webinar: Healthy Companies
Infocom Webinar: Healthy Companies
 
Working capital management
Working capital managementWorking capital management
Working capital management
 
Kleos Africa webinar Babatunde Akin-Moses - Business Valuation Simplified
Kleos Africa webinar   Babatunde Akin-Moses - Business Valuation SimplifiedKleos Africa webinar   Babatunde Akin-Moses - Business Valuation Simplified
Kleos Africa webinar Babatunde Akin-Moses - Business Valuation Simplified
 
7330 Lecture01 Intro and Review-F10.ppt
7330 Lecture01 Intro and Review-F10.ppt7330 Lecture01 Intro and Review-F10.ppt
7330 Lecture01 Intro and Review-F10.ppt
 

Recently uploaded

Pengantar Penggunaan Flutter - Dart programming language1.pptx
Pengantar Penggunaan Flutter - Dart programming language1.pptxPengantar Penggunaan Flutter - Dart programming language1.pptx
Pengantar Penggunaan Flutter - Dart programming language1.pptx
Fajar Baskoro
 
PCOS corelations and management through Ayurveda.
PCOS corelations and management through Ayurveda.PCOS corelations and management through Ayurveda.
PCOS corelations and management through Ayurveda.
Dr. Shivangi Singh Parihar
 
writing about opinions about Australia the movie
writing about opinions about Australia the moviewriting about opinions about Australia the movie
writing about opinions about Australia the movie
Nicholas Montgomery
 
NEWSPAPERS - QUESTION 1 - REVISION POWERPOINT.pptx
NEWSPAPERS - QUESTION 1 - REVISION POWERPOINT.pptxNEWSPAPERS - QUESTION 1 - REVISION POWERPOINT.pptx
NEWSPAPERS - QUESTION 1 - REVISION POWERPOINT.pptx
iammrhaywood
 
Digital Artefact 1 - Tiny Home Environmental Design
Digital Artefact 1 - Tiny Home Environmental DesignDigital Artefact 1 - Tiny Home Environmental Design
Digital Artefact 1 - Tiny Home Environmental Design
amberjdewit93
 
The History of Stoke Newington Street Names
The History of Stoke Newington Street NamesThe History of Stoke Newington Street Names
The History of Stoke Newington Street Names
History of Stoke Newington
 
Hindi varnamala | hindi alphabet PPT.pdf
Hindi varnamala | hindi alphabet PPT.pdfHindi varnamala | hindi alphabet PPT.pdf
Hindi varnamala | hindi alphabet PPT.pdf
Dr. Mulla Adam Ali
 
BBR 2024 Summer Sessions Interview Training
BBR  2024 Summer Sessions Interview TrainingBBR  2024 Summer Sessions Interview Training
BBR 2024 Summer Sessions Interview Training
Katrina Pritchard
 
ISO/IEC 27001, ISO/IEC 42001, and GDPR: Best Practices for Implementation and...
ISO/IEC 27001, ISO/IEC 42001, and GDPR: Best Practices for Implementation and...ISO/IEC 27001, ISO/IEC 42001, and GDPR: Best Practices for Implementation and...
ISO/IEC 27001, ISO/IEC 42001, and GDPR: Best Practices for Implementation and...
PECB
 
PIMS Job Advertisement 2024.pdf Islamabad
PIMS Job Advertisement 2024.pdf IslamabadPIMS Job Advertisement 2024.pdf Islamabad
PIMS Job Advertisement 2024.pdf Islamabad
AyyanKhan40
 
Natural birth techniques - Mrs.Akanksha Trivedi Rama University
Natural birth techniques - Mrs.Akanksha Trivedi Rama UniversityNatural birth techniques - Mrs.Akanksha Trivedi Rama University
Natural birth techniques - Mrs.Akanksha Trivedi Rama University
Akanksha trivedi rama nursing college kanpur.
 
C1 Rubenstein AP HuG xxxxxxxxxxxxxx.pptx
C1 Rubenstein AP HuG xxxxxxxxxxxxxx.pptxC1 Rubenstein AP HuG xxxxxxxxxxxxxx.pptx
C1 Rubenstein AP HuG xxxxxxxxxxxxxx.pptx
mulvey2
 
Your Skill Boost Masterclass: Strategies for Effective Upskilling
Your Skill Boost Masterclass: Strategies for Effective UpskillingYour Skill Boost Masterclass: Strategies for Effective Upskilling
Your Skill Boost Masterclass: Strategies for Effective Upskilling
Excellence Foundation for South Sudan
 
What is Digital Literacy? A guest blog from Andy McLaughlin, University of Ab...
What is Digital Literacy? A guest blog from Andy McLaughlin, University of Ab...What is Digital Literacy? A guest blog from Andy McLaughlin, University of Ab...
What is Digital Literacy? A guest blog from Andy McLaughlin, University of Ab...
GeorgeMilliken2
 
Life upper-Intermediate B2 Workbook for student
Life upper-Intermediate B2 Workbook for studentLife upper-Intermediate B2 Workbook for student
Life upper-Intermediate B2 Workbook for student
NgcHiNguyn25
 
How to Build a Module in Odoo 17 Using the Scaffold Method
How to Build a Module in Odoo 17 Using the Scaffold MethodHow to Build a Module in Odoo 17 Using the Scaffold Method
How to Build a Module in Odoo 17 Using the Scaffold Method
Celine George
 
Walmart Business+ and Spark Good for Nonprofits.pdf
Walmart Business+ and Spark Good for Nonprofits.pdfWalmart Business+ and Spark Good for Nonprofits.pdf
Walmart Business+ and Spark Good for Nonprofits.pdf
TechSoup
 
MARY JANE WILSON, A “BOA MÃE” .
MARY JANE WILSON, A “BOA MÃE”           .MARY JANE WILSON, A “BOA MÃE”           .
MARY JANE WILSON, A “BOA MÃE” .
Colégio Santa Teresinha
 
clinical examination of hip joint (1).pdf
clinical examination of hip joint (1).pdfclinical examination of hip joint (1).pdf
clinical examination of hip joint (1).pdf
Priyankaranawat4
 
How to Manage Your Lost Opportunities in Odoo 17 CRM
How to Manage Your Lost Opportunities in Odoo 17 CRMHow to Manage Your Lost Opportunities in Odoo 17 CRM
How to Manage Your Lost Opportunities in Odoo 17 CRM
Celine George
 

Recently uploaded (20)

Pengantar Penggunaan Flutter - Dart programming language1.pptx
Pengantar Penggunaan Flutter - Dart programming language1.pptxPengantar Penggunaan Flutter - Dart programming language1.pptx
Pengantar Penggunaan Flutter - Dart programming language1.pptx
 
PCOS corelations and management through Ayurveda.
PCOS corelations and management through Ayurveda.PCOS corelations and management through Ayurveda.
PCOS corelations and management through Ayurveda.
 
writing about opinions about Australia the movie
writing about opinions about Australia the moviewriting about opinions about Australia the movie
writing about opinions about Australia the movie
 
NEWSPAPERS - QUESTION 1 - REVISION POWERPOINT.pptx
NEWSPAPERS - QUESTION 1 - REVISION POWERPOINT.pptxNEWSPAPERS - QUESTION 1 - REVISION POWERPOINT.pptx
NEWSPAPERS - QUESTION 1 - REVISION POWERPOINT.pptx
 
Digital Artefact 1 - Tiny Home Environmental Design
Digital Artefact 1 - Tiny Home Environmental DesignDigital Artefact 1 - Tiny Home Environmental Design
Digital Artefact 1 - Tiny Home Environmental Design
 
The History of Stoke Newington Street Names
The History of Stoke Newington Street NamesThe History of Stoke Newington Street Names
The History of Stoke Newington Street Names
 
Hindi varnamala | hindi alphabet PPT.pdf
Hindi varnamala | hindi alphabet PPT.pdfHindi varnamala | hindi alphabet PPT.pdf
Hindi varnamala | hindi alphabet PPT.pdf
 
BBR 2024 Summer Sessions Interview Training
BBR  2024 Summer Sessions Interview TrainingBBR  2024 Summer Sessions Interview Training
BBR 2024 Summer Sessions Interview Training
 
ISO/IEC 27001, ISO/IEC 42001, and GDPR: Best Practices for Implementation and...
ISO/IEC 27001, ISO/IEC 42001, and GDPR: Best Practices for Implementation and...ISO/IEC 27001, ISO/IEC 42001, and GDPR: Best Practices for Implementation and...
ISO/IEC 27001, ISO/IEC 42001, and GDPR: Best Practices for Implementation and...
 
PIMS Job Advertisement 2024.pdf Islamabad
PIMS Job Advertisement 2024.pdf IslamabadPIMS Job Advertisement 2024.pdf Islamabad
PIMS Job Advertisement 2024.pdf Islamabad
 
Natural birth techniques - Mrs.Akanksha Trivedi Rama University
Natural birth techniques - Mrs.Akanksha Trivedi Rama UniversityNatural birth techniques - Mrs.Akanksha Trivedi Rama University
Natural birth techniques - Mrs.Akanksha Trivedi Rama University
 
C1 Rubenstein AP HuG xxxxxxxxxxxxxx.pptx
C1 Rubenstein AP HuG xxxxxxxxxxxxxx.pptxC1 Rubenstein AP HuG xxxxxxxxxxxxxx.pptx
C1 Rubenstein AP HuG xxxxxxxxxxxxxx.pptx
 
Your Skill Boost Masterclass: Strategies for Effective Upskilling
Your Skill Boost Masterclass: Strategies for Effective UpskillingYour Skill Boost Masterclass: Strategies for Effective Upskilling
Your Skill Boost Masterclass: Strategies for Effective Upskilling
 
What is Digital Literacy? A guest blog from Andy McLaughlin, University of Ab...
What is Digital Literacy? A guest blog from Andy McLaughlin, University of Ab...What is Digital Literacy? A guest blog from Andy McLaughlin, University of Ab...
What is Digital Literacy? A guest blog from Andy McLaughlin, University of Ab...
 
Life upper-Intermediate B2 Workbook for student
Life upper-Intermediate B2 Workbook for studentLife upper-Intermediate B2 Workbook for student
Life upper-Intermediate B2 Workbook for student
 
How to Build a Module in Odoo 17 Using the Scaffold Method
How to Build a Module in Odoo 17 Using the Scaffold MethodHow to Build a Module in Odoo 17 Using the Scaffold Method
How to Build a Module in Odoo 17 Using the Scaffold Method
 
Walmart Business+ and Spark Good for Nonprofits.pdf
Walmart Business+ and Spark Good for Nonprofits.pdfWalmart Business+ and Spark Good for Nonprofits.pdf
Walmart Business+ and Spark Good for Nonprofits.pdf
 
MARY JANE WILSON, A “BOA MÃE” .
MARY JANE WILSON, A “BOA MÃE”           .MARY JANE WILSON, A “BOA MÃE”           .
MARY JANE WILSON, A “BOA MÃE” .
 
clinical examination of hip joint (1).pdf
clinical examination of hip joint (1).pdfclinical examination of hip joint (1).pdf
clinical examination of hip joint (1).pdf
 
How to Manage Your Lost Opportunities in Odoo 17 CRM
How to Manage Your Lost Opportunities in Odoo 17 CRMHow to Manage Your Lost Opportunities in Odoo 17 CRM
How to Manage Your Lost Opportunities in Odoo 17 CRM
 

Time value of money

  • 2. Session AgendaSession Agenda • IntroductionIntroduction • Time PreferenceTime Preference • Productivity of CapitalProductivity of Capital • Uncertain FutureUncertain Future • Level of Interest ratesLevel of Interest rates • The Actuarial relationship to theThe Actuarial relationship to the Time Value of Money.Time Value of Money.
  • 3. IntroductionIntroduction • The time value of money a fundamentalThe time value of money a fundamental concept of actuarial science.concept of actuarial science. • Actuaries use this concept, together withActuaries use this concept, together with the concept of probability, in thethe concept of probability, in the calculation of actuarial present values –calculation of actuarial present values – which in tern becomes the buildingwhich in tern becomes the building blocks of actuarial models.blocks of actuarial models. • Two theories of time value of moneyTwo theories of time value of money • Time PreferenceTime Preference • Productivity of CapitalProductivity of Capital
  • 4. Time PreferenceTime Preference • People need and use moneyPeople need and use money • For current livingFor current living • For life styleFor life style • For future needsFor future needs • Also for protectionAlso for protection • Present value of money=present value of goodsPresent value of money=present value of goods • Borrowing from future is done becauseBorrowing from future is done because • To satisfy current needsTo satisfy current needs • To plan for futureTo plan for future – Hence, future money can satisfy Current/PresentHence, future money can satisfy Current/Present needs only if they can be pledged, borrowed againstneeds only if they can be pledged, borrowed against or otherwise moved from future into present.or otherwise moved from future into present.
  • 5. Productivity of CapitalProductivity of Capital • The strong preference for present money may be adequateThe strong preference for present money may be adequate in itself to explain consumer borrowing and consumerin itself to explain consumer borrowing and consumer lending.lending. • Business small or large require capital goods to prosper.Business small or large require capital goods to prosper. • The retailer’s place of business and inventory, and theThe retailer’s place of business and inventory, and the farmer’s seed, fertilizer, and machinery represent the capitalfarmer’s seed, fertilizer, and machinery represent the capital goods which, combined with labor, produce business income.goods which, combined with labor, produce business income. • In long run a business will be successful only if the ROCIn long run a business will be successful only if the ROC employed is greater than the rate of Interest.employed is greater than the rate of Interest. • Time value of money is often measured by the income thatTime value of money is often measured by the income that capital can produce, including business profits, dividends oncapital can produce, including business profits, dividends on common stock, and other forms of investment income notcommon stock, and other forms of investment income not
  • 6. Uncertain FutureUncertain Future • Time preferences are affected by inability to see the futureTime preferences are affected by inability to see the future clearly.clearly. • Interest rates are expected to rise when uncertainty is high.Interest rates are expected to rise when uncertainty is high. • Fears of inflation, the possibility of war, worries about tradeFears of inflation, the possibility of war, worries about trade deficits or the value of the currency, are all conducive todeficits or the value of the currency, are all conducive to increasing uncertainty, and to a higher price for presentincreasing uncertainty, and to a higher price for present money.money.
  • 7. Level of Interest ratesLevel of Interest rates • For an analysis of interest rateFor an analysis of interest rate behaviour, monitory considerationsbehaviour, monitory considerations should be taken into account.should be taken into account. • It is commonly held that the price ofIt is commonly held that the price of money, like the price of other goodsmoney, like the price of other goods varies with supply and demand.varies with supply and demand.
  • 8. The Actuarial relationship toThe Actuarial relationship to the Time Value of Moneythe Time Value of Money • Like any person involved in business,Like any person involved in business, economics, or finance, the actuary useseconomics, or finance, the actuary uses the time value of money concept in histhe time value of money concept in his daily work. There are two reasons for it.daily work. There are two reasons for it. – First, because they are appliedFirst, because they are applied mathematiciansmathematicians – Financial system is the key area for themFinancial system is the key area for them – Insurance is a long term investment contractInsurance is a long term investment contract – There are also short term contractsThere are also short term contracts
  • 9. ThankThank YouYou Activity for the next session???Activity for the next session???
  • 10. • Prepare synopsis of the case to bePrepare synopsis of the case to be discussed. REPORT OF ‘SOA’ ONdiscussed. REPORT OF ‘SOA’ ON GROUP LIFE – Submit on 4GROUP LIFE – Submit on 4thth of August’08of August’08 at BOD.at BOD. Activity for the next session???Activity for the next session???