Hello, I have the answers to my project but I need narratives for all my answer.

Question

Hello,

I have the answers to my project but I need narratives for all my answer. Ex. If the pension plan invest $95 million today in 10-year US Treasury bonds at an interest rate of 3.5% a year etc-- what does this mean to the company, IPS.

This is what I need. Submit your Time Value of Money Report and Calculations to the dropbox below. Be sure to show your calculations in Excel and provide a narrative analysis in PowerPoint. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of the company. ( should the company continue to invest?)

Explanation / Answer

Time value of Money- This is a very important concept of finance that says, value of money today is not equal to value of money in the future. One dollar today will not be same in the future. Purchasing power of money decreases as the time passes. If we deposit some money today in saving account or any fixed security, we get fixed return (sometimes compounding) on it and we get an increased amount after a period of time. Money has the potential to grow in the future.

Example:

Components of time value of money-

Inflation rate- This is the rate that shows the increase in price at a particular rate over a period of time. Inflation rate is used as a discount rate in time value of money calculation.

Present value- When a future sum of money is discounted at a discount rate to see the today's worth of it, is called the present value.

Present value = Future value / (1+interest rate)number of periods

Future value- This is the value of a sum of money in the future by using an inflation or interest rate and time period.

Future value = Present Value (1+interest rate)number of period

Interest Rate- This is the rate that a lender charges from borower for using a sum of money for a certain period of time. Ex: 5% 10% etc.

Ex. If the pension plan invest $95 million today in 10-year US Treasury bonds at an interest rate of 3.5% a year etc-- what does this mean to the company?

Answer:

From future value formula-

FV = 95000000 * (1+.035)10

FV = $134006882.259

It means if company invest todayna sum of $95 Million, it will receive $134006882.259 (approx) after 10 years because the regular interest payment.

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