MGT411 Assignment 1 Solution Fall 2017

Learning Objective

The students are expected to develop an understanding of financial instruments, time value of money using the concepts of future value and present value and to apply these concepts in financial decision making.

Learning Outcomes

After going through this activity, the students would be able to understand how value of money changes over time, the application of future value and present value concepts.

Assignment Question No. 1: (5 marks)

Financial instrument is a written legal obligation of one party to transfer something of value (usually money) to another party under specified conditions at some future date. These are used to transfer resources and risk. There are many financial instruments having different characteristics and value. What features influence the value of a financial instrument? Explain each feature briefly.

Question No. 2 (5 Marks)

Your firm has a retirement plan i.e. if you contribute Rs. 2,000 per year, the company will add Rs. 1,000 to make it Rs. 3,000. The firm guarantees an 8% return on the funds. Alternatively, you can “do it yourself” and think that you can earn 11% on your money by doing it in this way. The contribution will be made at the end of each year for the next 25 years. If you want to retire in 25 years, which way will you better off?